Blog Post

Three good reasons to be bullish on China in 2015

Back at the start of the decade, I made certain assumptions about how the so-called BRIC economies -- Brazil, Russia, India and China -- would perform in the 10 years ahead. Five years on, China is the only one of the four to have either met or possibly slightly surpassed my expectations. 

By: Date: January 9, 2015 Topic: Global Economics & Governance

China is poised to drastically enlarge its role in the world.

Halfway through a decade in which China set out to rebalance its economy, it is poised to drastically enlarge its role in the world. Let me explain why.

Back at the start of the decade, I made certain assumptions about how the so-called BRIC economies — Brazil, Russia, India and China — would perform in the 10 years ahead. Five years on, China is the only one of the four to have either met or possibly slightly surpassed my expectations. Assuming that China’s soon- to-be-published fourth-quarter gross domestic product number will come in at or close to 7.3 percent, as many experts assume, then from 2011 to 2014, China will have averaged real GDP growth of just less than 8 percent. I had assumed it would be 7.5 percent for the full decade (as did Chinese leaders back in 2011), and China could achieve this if its economy continues to grow by 7 percent for the next five years.

If so, it will have become a $10 trillion economy in current nominal U.S. dollars, well more than half the size of the U.S. (probably even bigger, adjusting for purchasing power), twice the size of Japan, bigger than Germany, France and Italy put together and not far off one and half times the size of the other three BRIC economies put together.

Brazil and Russia, for their part, have significantly disappointed my expectations. Indeed, their economic performance supports skeptics of their long-term potential, who attributed earlier growth primarily to high commodity prices. India also disappointed, but its growth rate accelerated in 2014. With the election of Narendra Modi as prime minister and the large drop in oil prices, India still has an outside chance of meeting my expectations for the full decade. It could even grow more than China in the second half.

Many international commentators remain bearish about China, expecting real GDP growth to slip significantly below 7 percent.

The reasons cited usually involve some combination of excessive debt, inefficient lending, weaker export markets and consumers’ ongoing inability to play a bigger role in the economy. All of these things are relevant, but they are challenges that Chinese policy makers are familiar with and seem eager to overcome.

For the past few months, the Shanghai index has been the top-performing market.

What has become especially intriguing, in contrast to this pessimism, is how strongly Chinese equity markets have performed since early November. For the past few months, the Shanghai index has been the top-performing market. What happened to all those claims that Chinese equities never rise? The eternal bears now say the Chinese market is an unsustainable bubble and/or that local buyers have been essentially press-ganged into buying equities in order to make the economy look good. Perhaps illiquidity is playing some role, but it seems unlikely to be much of the story.

I can think of at least three basic reasons to be bullish on China: First, the collapse of crude oil prices will boost consumers’ real incomes, helping them play a larger role in the economy.

Even though property prices have recently stalled, China will probably avoid a serious credit crunch

Second, even though property prices have recently stalled and begun to fall, China will probably avoid a serious credit crunch, partly because Chinese policy makers have been more serious about restraining prices before they can collapse.
Moreover, the price decline has made real estate affordable for more Chinese.

A third reason to be optimistic is the subdued nature of inflation in China. This allows for more accommodative monetary policy going forward.

Taken together, these factors will make it easier for China to rebalance its economy — by raising wages, increasing property-ownership rights for urban migrants and reforming pension systems.

In 2016, when China — with its economy growing at 6 to 7 percent — chairs the Group of 20 nations, it can do so as a fully engaged member of the global economy.

This article originally appeared in Bloomberg View.

Read more:

China seeking to cash in on Europe’s crises

Financial openness of China and India: Implications for capital account liberalisation


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More by this author
 

Opinion

Why China should fear the EU's carbon border tax

Expect Beijing to soon start lobbying against the proposal.

By: Alicia García-Herrero Topic: Energy & Climate, Global Economics & Governance Date: July 26, 2021
Read about event More on this topic
 

Upcoming Event

Sep
1
15:00

The future of EU-Africa relations

Bruegel Annual Meetings, Day 1 - A discussion of the state of play and outlook of EU-Africa relations.

Speakers: Masood Ahmed, Amadou Hott, André Sapir, Vera Songwe and Jutta Urpilainen Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author
 

Opinion

Could the RMB dislodge the dollar as a reserve currency?

The dollar remains the world’s largest reserve currency, but it is facing both domestic and external risks.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 14, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

CCP's 100th Anniversary: Reflecting and looking forward

As the Chinese Communist Party celebrates its 100th anniversary, we looked into the past, future and present of the country's economic development.

By: The Sound of Economics Topic: Global Economics & Governance Date: July 7, 2021
Read article More on this topic
 

Blog Post

The socio-economic consequences of COVID-19 in the Middle East and North Africa

Confronted with COVID-19, high-income Gulf countries have done better than most of their middle- and low-income neighbours; Jordan and Morocco are also positive exceptions.

By: Marek Dabrowski and Marta Domínguez-Jiménez Topic: Global Economics & Governance Date: June 14, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Challenges and growth of China's private sector

Is the dynamic role of the private sector in China under threat by its economic model and the United States?

By: The Sound of Economics Topic: Global Economics & Governance Date: June 9, 2021
Read article
 

Blog Post

For the climate, Asia-Pacific must phase out fossil-fuel subsidies

An exit from coal in the Asia-Pacific region is a global decarbonisation priority.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: May 31, 2021
Read article More by this author
 

Parliamentary Testimony

House of Lords

The UK’s security and trade relationship with China

Testimony before the International Relations and Defence Committee at the House of Lords, British Parliament on the UK’s security and trade relationship with China.

By: Alicia García-Herrero Topic: Global Economics & Governance, House of Lords, Testimonies Date: May 27, 2021
Read article Download PDF More on this topic
 

Policy Contribution

How difficult is China's business environment for European and American companies?

Contrary to some narratives, China's business practices have improved, with a business environment that is generally more favourable than that in other large countries at similar levels of development.

By: Uri Dadush and Pauline Weil Topic: Global Economics & Governance Date: May 26, 2021
Read article More on this topic More by this author
 

Opinion

Will Modi’s push for economic self-reliance succeed?

In its recovery, India will wish to consolidate market access for its export of services to rich countries and make the country’s growing market most attractive to the latest technology.

By: Suman Bery Topic: Global Economics & Governance Date: May 20, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

New kid in the playground: China's antitrust push

How is China’s antitrust push being weaponised to counter western sanctions?

By: The Sound of Economics Topic: Global Economics & Governance Date: May 12, 2021
Read about event More on this topic
 

Past Event

Past Event

Global value chain reshuffling: From tight coupling to loose coupling?

As the focus shifts from efficiency to resilience in global supply chains, what does this mean for China?

Speakers: Erik Berglöf, Alicia García-Herrero, Niclas Poitiers and Kristy Tsun-Tzu Hsu Topic: Global Economics & Governance Date: May 11, 2021
Load more posts