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The idea that city partnerships are mainly about international exchange is a myth, says Michael Krisch. As a social and political scientist, he specializes in the numerous city partnerships between Germany and China. In an interview with Manuel Liu, Krisch explains that economic interests are the primary focus. For a long time, many municipalities saw the so-called New Silk Road in particular as a unique opportunity for more jobs, trade tax revenue and prestige. Without heeding the official line of the German government, some municipalities even proudly claimed: “We are part of the New Silk Road.”
This euphoria is now somewhat dampened in light of the geopolitical challenges, says Krisch, especially as local media increasingly point out the risks. Nevertheless, Krisch sees no real China expertise in local governments. Chinese activities in German municipalities still operate in a regulatory gray area. That is why Krisch recommends establishing a central contact person at the federal level who can advise local authorities on partnerships with adequate China expertise.
Good advice is also expensive for TikTok in the USA. There, the ban of the popular social media app is drawing ever closer. Its Chinese parent company, ByteDance, only has until January to find a buyer – however, a sale still seems extremely unlikely. TikTok has not only rejected a sale due to US security concerns. It is also entirely unclear who could even buy the company. Meta and Alphabet, the companies behind Instagram and YouTube, would be logical buyers, but have failed to overcome regulatory hurdles.
The last chance for TikTok could come from Donald Trump, of all people, writes Jörn Petring. While he had called for the sale during his first term in office, he recently struck a completely different tone during the election campaign. Trump claims that he has become “a star” on TikTok. Around 15 million people follow him on the platform. Which will ultimately prevail: Trump’s vanity or his crackdown on China? Most of the 170 million monthly active TikTok users in the US will probably favor a more lenient approach. At the end of the day, this is also Chinese soft power.
Mr. Krisch, you examine German-Chinese municipal partnerships. Why do municipalities enter into such partnerships?
There are certainly many reasons for this. It is noticeable that economic interests, both on the German and Chinese side, are at the forefront. The classic idea of a town partnership in the sense of international friendship, on the other hand, tends to rank second or third. However, this is currently changing: As the goals and ideas have often not been achieved or have been made more difficult by Covid and the war in Ukraine, more politically innocuous topics are now coming to the fore again. Cultural as well as student and youth exchanges, for example.
Which municipalities have you spoken to?
My focus was on municipalities with a population of less than 100,000. As part of my field research, I conducted case studies in a total of eight municipalities in the northern German states. In each case, I asked for interviews with representatives from the local government, businesses and the media. I also spoke to representatives of the state constitutional protection authorities and the municipal umbrella organizations.
What is the state of expertise on China in municipalities?
There is practically no real China expertise among local governments. Exceptions can be found where actors have individual connections to China, such as a spouse of Chinese origin. Moreover, China competence can be found in German-Chinese associations, which often act as the actual sponsors of municipal partnerships. This is mainly because local business representatives who have had or have professional contact with China tend to be represented there.
How do the municipalities perceive the New Silk Road?
Most local business representatives see an opportunity in the project. In contrast, local media representatives primarily see the risks of the project. They particularly refer to the generally negative media coverage: Sub-projects in Africa, the port of Piraeus or COSCO’s stake in the port of Hamburg are some examples repeatedly mentioned in this context. However, the head civil servants tend to take a mediating stance.
One of your research questions was to what extent the New Silk Road affects German municipalities. What were your findings?
The connection to the New Silk Road varies greatly from municipality to municipality. The indications of ties are more pronounced in some municipalities than in others. Some municipalities say in press releases or on their website: “We are part of the New Silk Road.” One mayor told me in an interview that for a long time, it was not a problem to advertise with this. Everyone saw the New Silk Road as the big thing because it seemed to be an opportunity to generate new economic impetus, especially for structurally disadvantaged municipalities. At least that was the hope in many places. Today, interest has cooled considerably due to global political developments: From the perspective of the interviewees, contacts with China through municipal partnerships have been complicated, above all by the Covid pandemic and the Russian war of aggression against Ukraine. This also applies to the connections to German municipalities via the New Silk Road.
Does China consider such municipalities to be part of the New Silk Road?
There is no official map or project list that details all projects worldwide. The great advantage of this strategy is that the New Silk Road has a high degree of strategic imprecision. The whole initiative is very amorphous. This allows for much political leeway and, above all, freedom of interpretation regarding what is or is not part of the New Silk Road initiative. It is precisely in this gray area that the Chinese activities in Germany’s municipalities, which have a more or less pronounced direct connection to the New Silk Road Initiative, also operate.
What draws these municipalities to the initiative?
In particular, senior civil servants and local media representatives have repeatedly and independently mentioned a number of 800 to 1,000 potential jobs that would be created locally as a result of Chinese investments. This was always associated with hopes of attracting businesses and, not least, creating additional business tax revenue for local governments. To date, only one of the municipalities surveyed has actually created jobs: a mere three.
What recommendations do you draw from your results?
Three things: Firstly, many municipalities would benefit from a single contact point, for example, at the federal level, with adequate China expertise, who can advise municipalities on partnership matters and how to deepen them. Some municipalities also question what the Chinese side actually wants to achieve with the partnership. Secondly, it would appear to be important for municipal stakeholders to be able to network with each other. Thirdly, umbrella organizations of local authorities, both at the state and federal levels, can play an important role in aggregating China-related questions from municipalities.
Social and political scientist Michael Krisch is pursuing his PhD at the University of Vechta in cooperation with the University of Bremen. He hopes his findings will fill the research gaps around Sino-German municipal partnerships. Independently of his research, he works for the city of Osnabrück.
The TikTok ban in the United States is approaching. In April, President Joe Biden signed a bipartisan law to ban the social media app if the Chinese owner ByteDance does not transfer control of the platform. Accordingly, ByteDance has until January 19 to find a US buyer. However, the company has repeatedly declared that it is not willing to sell.
TikTok is waging a fierce legal battle, but has so far been unsuccessful. In the first week of December, an appeals court in Washington once again upheld the legality of the law. Another emergency request by TikTok was also dismissed on Friday. The Supreme Court is now the last hope before the January deadline. However, it is also likely to rule against TikTok. Supporters of a ban are already confident of victory. “Time is up for TikTok,” Craig Singleton, China expert at the Foundation for Defense of Democracies, commented on the latest ruling.
In it, Judge Douglas Ginsburg clearly identified the culprit: “That burden is attributable to [China’s] hybrid commercial threat to US national security, not to the US government.” Both Democrats and Republicans now demand that Apple and Google do everything in their power to prepare for the app’s deletion.
The situation is clear from the US government’s perspective: It views TikTok as a security risk. It argues that Chinese companies are obliged to share security-relevant data with the government in Beijing upon request and that the Chinese government could use TikTok data to blackmail American users or manipulate the content they see.
TikTok denies this. The company claims to have already invested over two billion dollars in Project Texas, a security initiative to store and manage all US user data on Oracle servers in the USA to protect it from Chinese access. TikTok feels it is being treated unfairly. A ban would mean 170 million monthly US users would have to do without the app. However, many fans of the platform argue that TikTok is part of everyday life, especially for young Americans.
Not only does TikTok reject a sale, it is also completely unclear who could buy the company. Meta and Alphabet, the companies behind Instagram and YouTube, would be logical buyers, but have failed to overcome regulatory hurdles. Oracle, already a partner of TikTok in the USA, has shown interest, but is financially constrained by high debts. Microsoft was considered a potential buyer in 2020, but negotiations failed.
Beijing’s stance in the dispute is clear: The Chinese government has announced that it will reject a forced split. Meanwhile, China has recently drawn attention to itself with a tougher stance in the ongoing tech war with the US.
Just this week, the Chinese market regulator launched an investigation into the US chip manufacturer Nvidia. Shortly before that, Beijing suspended the export of certain minerals for technological applications to the USA. These measures are primarily Beijing’s response to stricter US restrictions on chip deliveries. However, Beijing is making it clear that it will retaliate if the interests of its economy are undermined. Should the United States ban TikTok, US companies in China could also come under fire.
While TikTok is slowly running out of options, how Donald Trump will deal with the issue is unclear. The ban would officially come into force on January 19, with Trump moving into the White House the day after.
While he had called for a sale during his first term in office, he recently struck a completely different tone during the election campaign. Trump had claimed to be “a star” on TikTok. Indeed, he has around 15 million followers on the platform. The short video format is perfect for a populist like him. However, it has been a while since his last post. In it, Trump urged supporters on election night to remain patient outside the polling stations. “It’s going great,” Trump said in the video, which has been viewed 54 million times.
Trump may even be seeking revenge. He still has a score to settle with Meta CEO Mark Zuckerberg. His company would benefit significantly if TikTok disappeared from the US market. Yet Trump would perhaps prefer Meta to remain under pressure. Zuckerberg banned Trump from his platforms in 2021 after the storming of the US Capitol. As recently as August, Trump warned that Zuckerberg could “spend the rest of his life in prison” if Meta “cheats” in the 2024 elections.
Recently, however, there have been several meetings between Trump and Zuckerberg, which could indicate a rapprochement. This would not be good news for TikTok. For Trump to jump to the company’s aid would also not really fit in with his other intentions towards China. Things will remain interesting.
China’s GDP growth slowed during the first three quarters of 2024, from 5.3 percent to 4.7 percent to 4.6 percent, raising fears that the country would not achieve its annual growth target of around 5 percent. But the latest data suggest that China’s economy is finally turning the corner.
Economic activity in China has been relatively weak since the COVID-19 crisis. This was not unexpected, at least not at first: three years of pandemic lockdowns strained household, corporate, and local-government balance sheets. Declining business confidence – partly a response to a regulatory crackdown on finance, the property sector, and the platform economy – did not help matters. In early 2021, when the United States emerged from the worst of its pandemic lockdowns, American households quickly began spending the money they had accumulated.
Chinese households, by contrast, continued to accumulate savings even after the lockdowns were over: between January 2020 and August 2024, household bank deposits in China swelled by 65.4 trillion renminbi (9 trillion US dollars), with the wealthy accounting for a significant share.
China’s government introduced some supportive policies over this period, but in contrast to past disruptions, it refrained from implementing aggressive stimulus policies, owing to concerns about possible side effects. The massive stimulus package the government introduced after the 2008 global financial crisis spurred growth, but it also fueled a real-estate bubble, drove up local-government debt, and reduced investment efficiency.
The government’s calculations changed at the end of the third quarter of 2024, when it became clear that China’s economy would need more help to lift its growth trajectory. In late September, People’s Bank of China Governor Pan Gongsheng unveiled three measures: a reduction in banks’ reserve ratio, a policy-rate cut, and the creation of monetary-policy instruments to support the stock market.
Moreover, on October 12, Lan Fo’an, China’s finance minister, announced that new fiscal measures would focus on addressing local-government debt problems, stabilizing the real-estate market, and supporting employment. He followed this announcement in early November with a 10 trillion renminbi debt-swap plan for local governments.
Both Pan and Lan have suggested that more stimulus measures are in the pipeline, with Lan noting that China’s central government still has plenty of room to increase its debt and deficits. But recent data on high-frequency economic indicators – which tend to be the quickest to respond to macroeconomic-policy changes – suggest that the government’s actions began taking effect almost immediately.
In October, total “social finance” (total financing to the real economy) was up by 7.8 percent year-on-year, and outstanding bank loans had increased by 7.7 percent. Retail sales had risen by 4.8 percent year-on-year, and by 1.6 percentage points from the previous month. The manufacturing purchasing managers’ index reached 50.1, after three months of sub-50 readings, and increased again, to 50.3, in November.
In more good news, the surveyed urban unemployment rate dropped by 0.1 percentage points in October, to 5 percent. Even the property market improved marginally, though land sales and real-estate investment remained weak. If these positive trends continue, GDP growth will probably return to around 5 percent in the fourth quarter of 2024.
The outlook for 2025, however, is less clear. If China is to achieve 5 percent GDP growth next year – assuming this is the government’s target – policymakers will have to overcome three key challenges, starting with stabilizing the property sector, which contributes about 20 percent of GDP growth and accounts for 70 percent of household wealth.
The second challenge is local governments’ balance sheets. A shortage of funds has lately been driving local authorities to cut spending, such as by reducing officials’ salaries, and grasp for revenues, such as by chasing corporate back taxes and even detaining private entrepreneurs from other regions. None of this is good for growth. The fundamental problem is that spending responsibilities now exceed fiscal revenues, which are no longer being bolstered by land sales and local-government investment vehicles. The central government must urgently transfer a significant amount of general-purpose revenue to local authorities. More fundamentally, China needs to reconfigure the balance of fiscal responsibilities across levels of government.
The third major challenge that China will confront in 2025 is US President-elect Donald Trump, who has vowed to impose 60 percent tariffs on all imports from China during his first year in office. Given that China’s exports to the US account for 3 percent of its GDP, such tariffs – and even much lower ones – would have a material impact on growth in 2025. The investment bank UBS, for instance, predicted that China’s GDP growth would slow to 4 percent in 2025.
There has been much debate in China over whether the economy needs structural reforms or more macroeconomic stimulus. The truth is that it needs both. A decisive stimulus package, with a robust fiscal-policy component, must come first; this will make the biggest immediate difference. But once the package is in place, the government should turn its attention to structural reforms, with a focus on boosting confidence among consumers, investors, and entrepreneurs.
Over the past year, China’s government has published several policy documents aimed at restoring confidence. But with market participants not fully convinced, it must go further, implementing – boldly and visibly – some of the measures it has announced, such as stronger protections for private enterprises. Reining in local officials’ scrutiny of old tax records in search of missing payments would also go a long way toward strengthening business confidence.
Huang Yiping, Dean of the National School of Development and a professor at Peking University, is a member of the Monetary Policy Committee of the People’s Bank of China.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
At the beach and in ski huts, cool people naturally wear “ink glasses” to shield themselves from the sun’s blinding rays. When it comes to cool names, China’s “ink glasses” (墨 mò “ink” and 镜 jìng “lens; mirror”) clearly are in the top league of sunglasses. Incidentally, the Inuit used to put little knuckles or flat pieces of wood with fine slits on their noses to prevent snow blindness. And even the ancient Romans used sun protection for their eyes. In the first century AD, Emperor Nero supposedly always watched gladiator fights through green emeralds to protect his eyes from bright sunlight.
The idea that city partnerships are mainly about international exchange is a myth, says Michael Krisch. As a social and political scientist, he specializes in the numerous city partnerships between Germany and China. In an interview with Manuel Liu, Krisch explains that economic interests are the primary focus. For a long time, many municipalities saw the so-called New Silk Road in particular as a unique opportunity for more jobs, trade tax revenue and prestige. Without heeding the official line of the German government, some municipalities even proudly claimed: “We are part of the New Silk Road.”
This euphoria is now somewhat dampened in light of the geopolitical challenges, says Krisch, especially as local media increasingly point out the risks. Nevertheless, Krisch sees no real China expertise in local governments. Chinese activities in German municipalities still operate in a regulatory gray area. That is why Krisch recommends establishing a central contact person at the federal level who can advise local authorities on partnerships with adequate China expertise.
Good advice is also expensive for TikTok in the USA. There, the ban of the popular social media app is drawing ever closer. Its Chinese parent company, ByteDance, only has until January to find a buyer – however, a sale still seems extremely unlikely. TikTok has not only rejected a sale due to US security concerns. It is also entirely unclear who could even buy the company. Meta and Alphabet, the companies behind Instagram and YouTube, would be logical buyers, but have failed to overcome regulatory hurdles.
The last chance for TikTok could come from Donald Trump, of all people, writes Jörn Petring. While he had called for the sale during his first term in office, he recently struck a completely different tone during the election campaign. Trump claims that he has become “a star” on TikTok. Around 15 million people follow him on the platform. Which will ultimately prevail: Trump’s vanity or his crackdown on China? Most of the 170 million monthly active TikTok users in the US will probably favor a more lenient approach. At the end of the day, this is also Chinese soft power.
Mr. Krisch, you examine German-Chinese municipal partnerships. Why do municipalities enter into such partnerships?
There are certainly many reasons for this. It is noticeable that economic interests, both on the German and Chinese side, are at the forefront. The classic idea of a town partnership in the sense of international friendship, on the other hand, tends to rank second or third. However, this is currently changing: As the goals and ideas have often not been achieved or have been made more difficult by Covid and the war in Ukraine, more politically innocuous topics are now coming to the fore again. Cultural as well as student and youth exchanges, for example.
Which municipalities have you spoken to?
My focus was on municipalities with a population of less than 100,000. As part of my field research, I conducted case studies in a total of eight municipalities in the northern German states. In each case, I asked for interviews with representatives from the local government, businesses and the media. I also spoke to representatives of the state constitutional protection authorities and the municipal umbrella organizations.
What is the state of expertise on China in municipalities?
There is practically no real China expertise among local governments. Exceptions can be found where actors have individual connections to China, such as a spouse of Chinese origin. Moreover, China competence can be found in German-Chinese associations, which often act as the actual sponsors of municipal partnerships. This is mainly because local business representatives who have had or have professional contact with China tend to be represented there.
How do the municipalities perceive the New Silk Road?
Most local business representatives see an opportunity in the project. In contrast, local media representatives primarily see the risks of the project. They particularly refer to the generally negative media coverage: Sub-projects in Africa, the port of Piraeus or COSCO’s stake in the port of Hamburg are some examples repeatedly mentioned in this context. However, the head civil servants tend to take a mediating stance.
One of your research questions was to what extent the New Silk Road affects German municipalities. What were your findings?
The connection to the New Silk Road varies greatly from municipality to municipality. The indications of ties are more pronounced in some municipalities than in others. Some municipalities say in press releases or on their website: “We are part of the New Silk Road.” One mayor told me in an interview that for a long time, it was not a problem to advertise with this. Everyone saw the New Silk Road as the big thing because it seemed to be an opportunity to generate new economic impetus, especially for structurally disadvantaged municipalities. At least that was the hope in many places. Today, interest has cooled considerably due to global political developments: From the perspective of the interviewees, contacts with China through municipal partnerships have been complicated, above all by the Covid pandemic and the Russian war of aggression against Ukraine. This also applies to the connections to German municipalities via the New Silk Road.
Does China consider such municipalities to be part of the New Silk Road?
There is no official map or project list that details all projects worldwide. The great advantage of this strategy is that the New Silk Road has a high degree of strategic imprecision. The whole initiative is very amorphous. This allows for much political leeway and, above all, freedom of interpretation regarding what is or is not part of the New Silk Road initiative. It is precisely in this gray area that the Chinese activities in Germany’s municipalities, which have a more or less pronounced direct connection to the New Silk Road Initiative, also operate.
What draws these municipalities to the initiative?
In particular, senior civil servants and local media representatives have repeatedly and independently mentioned a number of 800 to 1,000 potential jobs that would be created locally as a result of Chinese investments. This was always associated with hopes of attracting businesses and, not least, creating additional business tax revenue for local governments. To date, only one of the municipalities surveyed has actually created jobs: a mere three.
What recommendations do you draw from your results?
Three things: Firstly, many municipalities would benefit from a single contact point, for example, at the federal level, with adequate China expertise, who can advise municipalities on partnership matters and how to deepen them. Some municipalities also question what the Chinese side actually wants to achieve with the partnership. Secondly, it would appear to be important for municipal stakeholders to be able to network with each other. Thirdly, umbrella organizations of local authorities, both at the state and federal levels, can play an important role in aggregating China-related questions from municipalities.
Social and political scientist Michael Krisch is pursuing his PhD at the University of Vechta in cooperation with the University of Bremen. He hopes his findings will fill the research gaps around Sino-German municipal partnerships. Independently of his research, he works for the city of Osnabrück.
The TikTok ban in the United States is approaching. In April, President Joe Biden signed a bipartisan law to ban the social media app if the Chinese owner ByteDance does not transfer control of the platform. Accordingly, ByteDance has until January 19 to find a US buyer. However, the company has repeatedly declared that it is not willing to sell.
TikTok is waging a fierce legal battle, but has so far been unsuccessful. In the first week of December, an appeals court in Washington once again upheld the legality of the law. Another emergency request by TikTok was also dismissed on Friday. The Supreme Court is now the last hope before the January deadline. However, it is also likely to rule against TikTok. Supporters of a ban are already confident of victory. “Time is up for TikTok,” Craig Singleton, China expert at the Foundation for Defense of Democracies, commented on the latest ruling.
In it, Judge Douglas Ginsburg clearly identified the culprit: “That burden is attributable to [China’s] hybrid commercial threat to US national security, not to the US government.” Both Democrats and Republicans now demand that Apple and Google do everything in their power to prepare for the app’s deletion.
The situation is clear from the US government’s perspective: It views TikTok as a security risk. It argues that Chinese companies are obliged to share security-relevant data with the government in Beijing upon request and that the Chinese government could use TikTok data to blackmail American users or manipulate the content they see.
TikTok denies this. The company claims to have already invested over two billion dollars in Project Texas, a security initiative to store and manage all US user data on Oracle servers in the USA to protect it from Chinese access. TikTok feels it is being treated unfairly. A ban would mean 170 million monthly US users would have to do without the app. However, many fans of the platform argue that TikTok is part of everyday life, especially for young Americans.
Not only does TikTok reject a sale, it is also completely unclear who could buy the company. Meta and Alphabet, the companies behind Instagram and YouTube, would be logical buyers, but have failed to overcome regulatory hurdles. Oracle, already a partner of TikTok in the USA, has shown interest, but is financially constrained by high debts. Microsoft was considered a potential buyer in 2020, but negotiations failed.
Beijing’s stance in the dispute is clear: The Chinese government has announced that it will reject a forced split. Meanwhile, China has recently drawn attention to itself with a tougher stance in the ongoing tech war with the US.
Just this week, the Chinese market regulator launched an investigation into the US chip manufacturer Nvidia. Shortly before that, Beijing suspended the export of certain minerals for technological applications to the USA. These measures are primarily Beijing’s response to stricter US restrictions on chip deliveries. However, Beijing is making it clear that it will retaliate if the interests of its economy are undermined. Should the United States ban TikTok, US companies in China could also come under fire.
While TikTok is slowly running out of options, how Donald Trump will deal with the issue is unclear. The ban would officially come into force on January 19, with Trump moving into the White House the day after.
While he had called for a sale during his first term in office, he recently struck a completely different tone during the election campaign. Trump had claimed to be “a star” on TikTok. Indeed, he has around 15 million followers on the platform. The short video format is perfect for a populist like him. However, it has been a while since his last post. In it, Trump urged supporters on election night to remain patient outside the polling stations. “It’s going great,” Trump said in the video, which has been viewed 54 million times.
Trump may even be seeking revenge. He still has a score to settle with Meta CEO Mark Zuckerberg. His company would benefit significantly if TikTok disappeared from the US market. Yet Trump would perhaps prefer Meta to remain under pressure. Zuckerberg banned Trump from his platforms in 2021 after the storming of the US Capitol. As recently as August, Trump warned that Zuckerberg could “spend the rest of his life in prison” if Meta “cheats” in the 2024 elections.
Recently, however, there have been several meetings between Trump and Zuckerberg, which could indicate a rapprochement. This would not be good news for TikTok. For Trump to jump to the company’s aid would also not really fit in with his other intentions towards China. Things will remain interesting.
China’s GDP growth slowed during the first three quarters of 2024, from 5.3 percent to 4.7 percent to 4.6 percent, raising fears that the country would not achieve its annual growth target of around 5 percent. But the latest data suggest that China’s economy is finally turning the corner.
Economic activity in China has been relatively weak since the COVID-19 crisis. This was not unexpected, at least not at first: three years of pandemic lockdowns strained household, corporate, and local-government balance sheets. Declining business confidence – partly a response to a regulatory crackdown on finance, the property sector, and the platform economy – did not help matters. In early 2021, when the United States emerged from the worst of its pandemic lockdowns, American households quickly began spending the money they had accumulated.
Chinese households, by contrast, continued to accumulate savings even after the lockdowns were over: between January 2020 and August 2024, household bank deposits in China swelled by 65.4 trillion renminbi (9 trillion US dollars), with the wealthy accounting for a significant share.
China’s government introduced some supportive policies over this period, but in contrast to past disruptions, it refrained from implementing aggressive stimulus policies, owing to concerns about possible side effects. The massive stimulus package the government introduced after the 2008 global financial crisis spurred growth, but it also fueled a real-estate bubble, drove up local-government debt, and reduced investment efficiency.
The government’s calculations changed at the end of the third quarter of 2024, when it became clear that China’s economy would need more help to lift its growth trajectory. In late September, People’s Bank of China Governor Pan Gongsheng unveiled three measures: a reduction in banks’ reserve ratio, a policy-rate cut, and the creation of monetary-policy instruments to support the stock market.
Moreover, on October 12, Lan Fo’an, China’s finance minister, announced that new fiscal measures would focus on addressing local-government debt problems, stabilizing the real-estate market, and supporting employment. He followed this announcement in early November with a 10 trillion renminbi debt-swap plan for local governments.
Both Pan and Lan have suggested that more stimulus measures are in the pipeline, with Lan noting that China’s central government still has plenty of room to increase its debt and deficits. But recent data on high-frequency economic indicators – which tend to be the quickest to respond to macroeconomic-policy changes – suggest that the government’s actions began taking effect almost immediately.
In October, total “social finance” (total financing to the real economy) was up by 7.8 percent year-on-year, and outstanding bank loans had increased by 7.7 percent. Retail sales had risen by 4.8 percent year-on-year, and by 1.6 percentage points from the previous month. The manufacturing purchasing managers’ index reached 50.1, after three months of sub-50 readings, and increased again, to 50.3, in November.
In more good news, the surveyed urban unemployment rate dropped by 0.1 percentage points in October, to 5 percent. Even the property market improved marginally, though land sales and real-estate investment remained weak. If these positive trends continue, GDP growth will probably return to around 5 percent in the fourth quarter of 2024.
The outlook for 2025, however, is less clear. If China is to achieve 5 percent GDP growth next year – assuming this is the government’s target – policymakers will have to overcome three key challenges, starting with stabilizing the property sector, which contributes about 20 percent of GDP growth and accounts for 70 percent of household wealth.
The second challenge is local governments’ balance sheets. A shortage of funds has lately been driving local authorities to cut spending, such as by reducing officials’ salaries, and grasp for revenues, such as by chasing corporate back taxes and even detaining private entrepreneurs from other regions. None of this is good for growth. The fundamental problem is that spending responsibilities now exceed fiscal revenues, which are no longer being bolstered by land sales and local-government investment vehicles. The central government must urgently transfer a significant amount of general-purpose revenue to local authorities. More fundamentally, China needs to reconfigure the balance of fiscal responsibilities across levels of government.
The third major challenge that China will confront in 2025 is US President-elect Donald Trump, who has vowed to impose 60 percent tariffs on all imports from China during his first year in office. Given that China’s exports to the US account for 3 percent of its GDP, such tariffs – and even much lower ones – would have a material impact on growth in 2025. The investment bank UBS, for instance, predicted that China’s GDP growth would slow to 4 percent in 2025.
There has been much debate in China over whether the economy needs structural reforms or more macroeconomic stimulus. The truth is that it needs both. A decisive stimulus package, with a robust fiscal-policy component, must come first; this will make the biggest immediate difference. But once the package is in place, the government should turn its attention to structural reforms, with a focus on boosting confidence among consumers, investors, and entrepreneurs.
Over the past year, China’s government has published several policy documents aimed at restoring confidence. But with market participants not fully convinced, it must go further, implementing – boldly and visibly – some of the measures it has announced, such as stronger protections for private enterprises. Reining in local officials’ scrutiny of old tax records in search of missing payments would also go a long way toward strengthening business confidence.
Huang Yiping, Dean of the National School of Development and a professor at Peking University, is a member of the Monetary Policy Committee of the People’s Bank of China.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
At the beach and in ski huts, cool people naturally wear “ink glasses” to shield themselves from the sun’s blinding rays. When it comes to cool names, China’s “ink glasses” (墨 mò “ink” and 镜 jìng “lens; mirror”) clearly are in the top league of sunglasses. Incidentally, the Inuit used to put little knuckles or flat pieces of wood with fine slits on their noses to prevent snow blindness. And even the ancient Romans used sun protection for their eyes. In the first century AD, Emperor Nero supposedly always watched gladiator fights through green emeralds to protect his eyes from bright sunlight.