The economic surprise index (a measure which shows how data is performing against economic forecasts) for China has noticeably dropped since the 19th National Congress of the Communist Party of China held in October 2017. This indicates strengthened confidence in RMB assets and a stronger-than-expected economic performance, wrote Zhong Zhengsheng, chief economist at business consultancy CEBM Research, in an opinion piece published on the social media platform of Peking University’s Research Institute of Maritime Silk Road.
Zhong also referred to potential changes in companies’ behavior patterns and to the excessive share of State-owned enterprises (SOEs) in manufacturing as two important variables in China’s economic growth.
Chinese government efforts to cut excess capacity may allow only a few companies to survive in an industry, which may form a monopoly, but easiness in making profits may discourage these companies from expanding production, Zhong said.
SOEs have demonstrated strong profitability, according to Zhong. This has mostly to do with the increasing prices of raw materials, a sector where State-owned enterprises have retained a massive presence after being ordered to quit from more competitive fields. It does not reveal whether SOEs have improved their management and efficiency.