A paradox will emerge if we simply look at the contribution of the demand factors to China’s GDP growth, says Cai Fang: the contribution of external demand to the country’s GDP growth stood at only 11% in 2019; it even fell below zero in many previous years...
In statistical terms, external demand means net exports, or total exports less total imports. So a question arises: does negative external demand mean that it is not important?
It even gives rise to a ridiculous idea that China only needs to cut down its imports so that exports can contribute more to GDP growth, which is nothing but a mercantilist conclusion. But the fact is far from that...
International trade remains an important contributing factor to China’s economic growth. This is why researchers have converted statistical concepts into economic concepts and re-estimated the contribution of external demands, which has important policy implications...
Hence, China should fully tap into its own comparative advantages, and the unique position, connection and resilience it has in GVC to cement its in-depth integration into the global division of labor and avoid decoupling or isolation from it.
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More from @ChinaFinance40

15 Oct
Joining high-standard economic / trade pacts such as #CPTPP will be an important strategic move for #China to accommodate itself amid the current changes, says Huang Qifan: mp.weixin.qq.com/s/lBj7m4Usv_M-… 1/6
Joining CPTPP will level up China’s opening-up drive, which will force more in-depth and fundamental reforms. That will reinvigorate Chinese market participants, improve the efficiency of the internal circulation, and step up forming a mature market economy...2/6
Meanwhile, participation in the pact will help China to open up wider and engage more in the international circulation...3/6
Read 6 tweets
25 Sep
3 key takeaways from Prof Huang Yiping on China’s capital account opening – should China open it up? When, and how?

(1) capital account opening is an easy choice for China. 1/7
(2) there is probably not a so-called best timing for this move, and it could be a good timing to do this when the economy and financial market are not doing perfectly well, because in that case policymakers would be more vigilant against risk factors. 2/7
(3) it’s important to remain prudent and open up in a steady manner, and China needs to press ahead with the task in due order and take necessary macro-prudential measures to make sure that the opening-up is robust and sustainable. Tobin tax could be taken as a good example. 3/7
Read 7 tweets
24 Sep
Corporate profitability must be improved to cope with rising financial risks by Zhang Bin and Zhu He: new.cf40.org.cn/uploads/202008… 1/5 #COVID19 #economicrecovery
China’s financial system will face two major potential risks in the near future:
1. corporate profit may not see continuous improvement, and bad debts of some enterprises in some regions and industries may increase sharply 2/5
2. bad loans of some of the financial institutions, especially small and medium-sized banks, could amass quickly, which may eventually lead to financial contagion. 3/5
Read 5 tweets
23 Sep
According to Zhang Xiaohui, it’s important to boost China’s third-pillar pension market. In some senses, this market is key to solving many tricky issues, e.g. financial system restructuring, long-term capital formation, lowering macroeconomic leverages, etc...1/5
The savings rate in China is high. But a large proportion of savings translated into net outbound investments via net exports. Amid the dual circulation drive, Chinese businesses will enhance R&D, and do long-term investments...2/5
To support them, China needs to spur long-term capital formation. Compared with mature pension systems, third-pillar pensions in China face problems e.g. insufficient tax preferences, excessive taxation procedures, inadequate incentives for the Chinese people to participate...3/5
Read 5 tweets
22 Sep
How Should China’s Economy Achieve Potential Growth amid the Secular Stagnation New Normal of Global Economy? by Cai Fang: new.cf40.org.cn/uploads/202009… 1/5
Secular stagnation,the new normal of global economy,and de-globalization are two major external challenges faced by Chinese economy.While the former features low interest rates,low inflation and low growth, the latter is likely to be aggravated by the #COVID19 outbreak. 2/5
In the meantime, China is also facing one of the most severe constraints to economic growth, that is, total population growth will enter the negative territory very soon, which will cause serious shortfall in aggregate demand. 3/5
Read 5 tweets
21 Sep
Promoting #RMB in international transactions is increasingly important, says Zhang Xiaohui.

In the past, businesses mainly considered market factors when choosing a currency for cross-border settlements, e.g. exchange rate risk, currency conversion costs & financing costs...
RMB as a currency with high interest rates are attractive to foreign investors as China opens up its financial market wider, but in global trade, its costs are higher than the USD, the Euro or the Japanese yen...
However, concerned that settlements in #USD could be arrested by the US' financial sanctions&long-arm jurisdictions, more businesses have turned to RMB in cross-border transactions. The dependence on the USD system for settlements could be reduced through refined management...
Read 5 tweets

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