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Mixed feelings about China economy growth

Kamel Mellahi

China’s economy grew 6.7 percent in 2016 and Chinese policy makers will take heart from the new economic growth data. Despite the overall slow-down in 2016, economic growth during the last quarter rebounded significantly. From Kamel Mellahi, a Professor of Strategic Management at Warwick Business School and an expert on business in China.

But although the Chinese economy has picked up again, there is no ground for exuberance. The Chinese economy is subject to massive uncertainties that could have a significant impact on its growth in 2017. It’s widely expected that Chinese policy makers are going to push through some painful structural reforms to address the root-causes of a number of economic problems, particularly rising debt in order to secure a stronger and more stable economic future. The impact of such reforms will be reflected in slower growth in both the short and long terms. But the biggest unknown, without question, is the looming trade war with the U.S. The current ping-pong rally of accusations and hostile political rhetoric will no doubt leave its mark on China – U.S. business relationship.

While I believe overt hostile actions are unlikely, at least from the Chinese side, one expects subtle hostility towards US businesses in China and Chinese businesses in the US. Indeed, we have already started seeing the impact of such hostilities on the ground. The impact of subtle hostilities may not be so immediate and so dramatic but it should not be overlooked. If subtle hostilities persist, businesses may choose to invest in alternative locations, and key talent may resist moving to countries where they are not made to feel very welcomed. In the long term the impact of current hostile political rhetoric on China – U.S. business relationship will depend on whether it will escalate into some sort of trade war or be resolved successfully.

At the moment, the battle lines are not clear. We are seeing two different approaches to how the China-U.S. trade issue can be resolved. China is looking for a compromise solution, arguing that more can be gained by the two countries working together than by engaging in a trade war. But while China looks like it’s striving for peace, it does not want to look weak. The rhetoric coming out of China is clear – China does not want a trade war, but if a trade war is forced on China, China will not capitulate to U.S. pressure. In contrast, the U.S. government is taking a tough stand against China but at the same time has not rejected a trade deal outright.

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