China’s economy has not roared back as expected after Covid controls were lifted. In fact, deeper patterns suggest a possible sustained downturn. While some Americans may find this to be a relief, it raises concerns of what a leader might do to sustain his popularity.
Earlier this year, the yuan fell to its lowest level in 16 years. Since January, Hong Kong’s Hang Seng index has fallen over 20%. Youth unemployment is over 20%. Foreign investment reached a record low last quarter. Local government debt has soared. China is anticipating a real estate meltdown; and while its economy was expected to grow 5% this year, economists are now doubtful. In past downturns, the government would have pumped up the economy by borrowing money and putting it into property and construction projects. However, China is now carrying so much debt it doesn’t dare try that again. Instead, Beijing has reduced interest rates and made only small moves to boost the economy. Many economists say China needs to shift from a business economy to a consumer economy, but this would require a total rethinking of the government’s long-term economic plan.
Wealth is one of the four leadership power sources, and while a sagging economy is not likely to cause China to lose power anytime soon, it will put a drag on it. Population is another power source, so dealing with an aging population will be another drag. Managing this combination effectively will be critical for China to retain its position on the world stage in the coming decades.
Perhaps a more near-term concern is the possible response by the government. The Chinese Communist Party has held onto power because it has sustained China’s growth. If the economy slows, its grip on power will be loosened. President Xi Jinping has already told Chinese youth that they need to get tougher: to “Eat bitterness.” One would hope that China’s leadership would not distract its people with an audacious move, such as attacking Taiwan. So while some Americans may feel relieved, the potential fallout could be more disconcerting.
Source:
Christian Shepherd, “As China’s Economy Slows, the Buck Stops with Leader Xi Jinping,” Washington Post, 25 August 2023; accessed from https://www.washingtonpost.com/world/2023/08/25/china-economic-growth-slowing-xi-jinping/
Ellen Zhang and Marius Zaharia, “Chinas Ha No Pain-free Solutions for its Slowing Economy,” Reuters, 25 August 2023; accessed from https://www.reuters.com/world/china/china-has-no-pain-free-solutions-its-slowing-economy-2023-08-24/
Laura He, “China’s Economy is in Trouble. Here’s What’s Gone Wrong,” CNN, 23 August 2023; accessed from https://www.cnn.com/2023/08/21/economy/china-economy-troubles-intl-hnk/index.html
Photo: Carnegie Endowment