Third-Quarter Growth Was Strong But Moderated Late On

THIRD-QUARTER GDP growth came in at 4.9%, less than expected and probably reflecting the tailing off of the growth spurt seen in the early part of the quarter. Nonetheless, the economy remains on track to be the only one among G20 countries that will show an expansion this year. Central bank governor Yi Gang is predicting about 2% GDP growth for the full year.

Industrial output drove the third-quarter growth, backed by stimulus measures. Industrial production rose by 6.9% year-on-year in September, but domestic demand remains fragile with retail sales rising just 3.3% in September.

Eyes will now be on next month’s Plenum which will ratify the goals of the next Five-Year Plan (2021-25). This will give some structure to the ‘dual circulation’ or ‘dual loops’ notion that reframes ‘rebalancing’ the economy for higher-quality, sustainable growth as pairing maintaining global integration with increasing domestic supply and demand, especially for high-tech goods and services.

Given the need to start the plan during high global economic and political uncertainty and in parallel with unwinding the stimulus needed to counter the Covid-19 pandemic, we are also likely to hear a lot more about the importance of the six ‘stabilities’ and the six ‘maintains’.

The six fronts on which stability must be ensured are:

  • employment,
  • the financial sector,
  • foreign trade,
  • foreign investment,
  • domestic investment, and
  • expectations.

The six areas in which security must be maintained are:

  • job security,
  • basic living needs,
  • operations of market entities,
  • food and energy security,
  • stable industrial and supply chains, and
  • normal functioning of primary-level governments.

While the six stabilities have been part of the economic blueprint for a while, the six maintains only appeared less than a year ago, underlying a heightening of the Party’s ever-present worry that its political legitimacy based on economic success was at risk.

It is no coincidence that jobs top both lists. A higher-tech economy would be more productive but not necessarily as job-generating in aggregate as an export-led manufacturing one, especially when it comes to lower-skilled jobs. Beijing will have to face the same hollowing-out of middle-skilled blue and white-collar jobs that has vexed post-industrial Western economies.

That will provide several challenges for economic planners: reskilling the workforce, creating employment for three potentially politically troublesome groups, new graduates, rural migrants and PLA veterans, and patching the social safety net to catch those that fall through the cracks of the first two. One thing the Party will not allow is the populist backlash against technological change and a shape-shifting economy that has been seen politically in the West.

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