People visit an exhibition area at the Boutique Theme Exhibition of the 2023 Global Digital Economy Conference in Beijing, capital of China, July 7, 2023. /CFP
Editor's note: Daryl Guppy, a special commentator on current affairs for CGTN, is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a former national board member of the Australia China Business Council. The article reflects the author's opinions and not necessarily those of CGTN.
Ratings agency Fitch downgraded U.S. debt. Perhaps seeking to distract attention from this, some economic analysts loudly turned bearish on the Chinese economy. They repeated the inaccurate analysis that has failed time and time again to understand the drivers of China's economic growth. Now they fail to understand the changing nature of China's economic growth, preferring to measure it against outdated assumptions.
Recently I listened to a respected bank economist deliver his 10th annual talk about China's economic outlook and development. Unlike many Western analysts, he actually admitted that almost none of his China forecasts for 2022 had been correct. But like many Western analysts, he plowed ahead with forecasts for 2023 using the same flawed analysis methods he had used in 2022.
The failure in his 2022 forecasting was, in part, because it treated China as if it was the same during COVID-19 as it was before the pandemic. His 2023 forecast assumed that China post-COVID-19 would return to the same trajectory that had prevailed pre-COVID-19. It was as if China has remained in suspended animation throughout the past few years. Like many observers, he failed to recognize the significant changes to the nature and sustainability of growth that took place during this period.
It's well known that China faces the "middle-income trap" that faces all developing nations. This describes the situation where growth comes from increased productivity and increased domestic demand. Western economists seem to believe China is blind to these challenges.
They are wrong. The policies such as "dual circulation" are explicitly designed to tackle these economic problems, partly by reducing the reliance on exports. But more significantly, these policies support and encourage China's progress towards a digital economy that will bring the necessary boost to productivity and demand. It's an economic advance that Western observers failed to fully understand because the move towards a digital economy in the West is slow and dominated by monopolistic exploitation.
Aerial view of the Lujiazui financial zone in Shanghai, east China. /CFP
Take one example of the way they miss the significance of these changes. Chinese consumption of paper and paperboard declined in 2022 for the first time in four years. Western economists saw this as evidence of business collapse.
The analysis of these raw statistics ignores the changing nature of consumption and economic activity. Last year I purchased six paper-printed books compared with the 160 digital books I read on Kindle in 2022. It should come as no surprise that sales of uncoated paper for books have declined.
Printed catalogs, fashion magazines and printed advertising flyers are increasingly going digital. More advertisers are selling products through livestreaming as this is now the most cost-effective form of advertising. This digital development was accelerated by COVID-19 lockdowns. It's a sign of a shift to a more productive digital economy, not a sign of economic collapse.
In line with the slowdown in the global economy, the demand for packaging paper also fell. The segment was hurt by a slump in exports of electronics and other products caused by global slowdowns, especially in the U.S. and Europe. However, Western economists ignore this relationship, preferring instead to use the reduction in demand as a sign of Chinese, not global, economic problems.
Economists readily acknowledge that Western economic activity is different in important ways post-COVID-19. The rapid widespread use of electronic settlement is one example of many that have shaken up the way business is conducted. Yet the "China bears" seem reluctant to concede that COVID-19 has triggered similar changes in China's business activity.
Globally, COVID-19 accelerated a shift towards the digital economy because it locked down aspects of the physical economy. This shift started from a high starting point in China where it was facilitated by a sophisticated payment system already developed by a number of local tech giants. This means that some of the traditional metrics used to measure growth, like paper consumption, are no longer as relevant.
China has a record of decades of carefully and successfully managed economic growth that has seen the elimination of extreme poverty. This growth has been achieved because problems have been recognized, solutions researched, trialed and tested, and then effectively applied at a national level. At every stage, Western critics have predicted China's economic collapse and at every stage, they have been proven wrong.
As China's economy expands, the rate of growth will inevitably slow, but China's development of the digital economy will lift productivity so the country can avoid the "middle-income trap." It's a consistently successful process that the "China bears" fail to understand.
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