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New Mandates from Heaven?

Walker Frost

China’s National Bureau of Statistics thinks that it’s time to talk less about GDP (via Bloomberg) and to talk more about 40 other economic indicators. This de-emphasis of GDP figures would undoubtedly make it more difficult for China-watchers (gulp) to make snap judgments about China’s relative economic health. It could even moderate the pervasiveness of polarizing predictions (like this or this) about when China will pass the United States as the world’s largest economy… OK, maybe not.

One seemingly obvious motivation behind the change: GDP growth in China has finally returned to orbit. Contemporary wisdom about China’s modern social contract says that the ruling party gets a fairly long leash so long as the economy keeps moving in the right direction. If GDP growth serves as a proxy for economic prosperity and economic prosperity serves as a proxy for the Mandate of Heaven, then China’s ruling class has an interest in redefining the framework of expectations. 

Cynical over-simplifications aside, the always-excellent Michael Pettis explains that we shouldn’t be so quick to jump to the conclusion that “slower GDP growth [in China] will cause social disturbance or even chaos because of angry, unemployed mobs.” What’s most important for China’s long-term economic prosperity – and social stability – is that Chinese households continue to see their income and purchasing power grow at a steady clip. “If Chinese households can continue to see their income growth maintained at 5% or higher, they will be pretty indifferent to the seeming collapse in GDP growth.”

That’s what a best-case scenario could look like for China's economy – the heady days of double-digit GDP growth are a thing of the past. Whether China’s current national administration can push through some of the structural reforms (i.e. currency liberalization, greater social mobility, legal predictability/transparency, rural land ownership, social security development) conducive to facilitating such an economic rebalancing remains a great unknown. As Pettis points out in the comments section, “There are probably no more than 50-100 people in China who can really tell you what is happening politically, and of course they won’t tell you, or at least they haven’t told me.”

There seems to be an interesting confluence of incentives here that could, for the first time in a while, improve U.S-China relations. The changes that many Western Sinophiles want to see happen in China are now closely aligned with what China probably needs to do in order to achieve a healthy economic rebalancing. Here's a stretch: perhaps China's next stage of economic liberalization, if it happens, will not only catalyze a devolution of social and economic power in China, but it will also provide an ideological common-ground to rekindle trust in the world's most important bilateral relationship.