News

China’s economic slowdown

China is experiencing a slow-moving economic crisis that could undermine stability in the current regime and have serious negative consequences for the global economy. Despite many warning signs, Western analysts and policymakers are optimistic that Xi Jinping has the ability to manage the crisis. Such optimism is misplaced.

The United States and its allies have many tools to influence the Chinese economy, and it is necessary to weigh the consequences of an acute crisis against the threat posed by its current trajectory. The rapid and steady growth of the Chinese economy will continue.

In December, Chinese real estate developers

Evergrande

and Kaisa went bankrupt along with a number of other cost surplus companies, resulting in hundreds of billions of yuan and dollars in debt to the point of default. Real estate represents about 30% of the Chinese economy, almost double the level that led to the 2008-09 financial crisis in the US, Spain and UK.

The real estate industry is key to maintaining annual growth above 6%. However, the debt bubble has grown by 20% annually between 2014 and 2018. Originally intended to accommodate rapid urbanization for the industrial economy, the urban real estate market is now over-built. About 90% of urban households own their own real estate and have enough empty apartments to accommodate urban immigrants for 10 years. Sales and prices have fallen this year, and builders and overcharged creditors are bearing the brunt.

Following a major change in the way central and local governments divide tax revenues in 1994, local Chinese officials began to rely on land sales for the income needed to improve facilities. infrastructure and social welfare. At a minimum, one-third of local government revenue comes from land sales. Another 10% to 15% comes from development related taxes.

However, land sales fell more than 30% by the end of 2021, putting local finances in jeopardy. Local governments have struggled to address other priorities such as healthcare, pensions, cleaning up, income inequality and education. Furthermore, up to 80% of household wealth in China is due to property ownership, a hedge against a weak social safety net. In other words, an economic downturn is a potential threat to China’s latent social narrowing between authoritarian rulers and a peaceful population.

With a zeal to reassert the dominance of the Chinese Communist Party, Mr. Xi engineered a crackdown on some of China’s most innovative industries and the entrepreneurs who built them. The party’s distribution of credit to state-owned enterprises hurts a more dynamic private industry and creates more jobs, puts members on the management committees of most enterprises and disciplines them. Business leaders are seen as opposed to Mr. Xi’s leadership. The stagnation of new industries such as car-sharing, private education, social media, and private and online healthcare is particularly damaging to growth.

Mr. Xi is prioritizing the less productive and less innovative sectors of the Chinese economy while increasing controls, restricting financing and punishing business leaders in many top industries. This is not a recipe for sustaining strong economic growth. Despite frequent assertions that China is catching up or ahead of the West in technology industries, the country has a long way to go to achieve the self-sufficiency and global leadership it is seeking. . For example, US sanctions on advanced semiconductors have cut off Huawei’s ability to produce 5G phones. China’s semiconductor industry is 10 years behind world leaders, according to a recent German report research.

China’s commercial aviation industry has no internationally certified jets to compete with

Boeing

and

Airbus,

despite three decades of concentrated effort. Their biopharmaceutical industry has failed to produce an effective vaccine for Covid. Steel, batteries and high-speed rail – where China competes – are at risk of trade retaliation due to environmentally harmful manufacturing practices and intellectual property theft. China’s alleged leadership in the field of artificial intelligence could be wiped out by imposing the same limits on data flows into China that it imposes internally, thereby removing monopoly on big data and by restricting US investment in Chinese AI companies.

China’s overall productivity level also lags behind other advanced economies. Mr. Xi’s shift to state-owned enterprises and manufacturing will certainly not improve this relative weakness.

In short, it is hard to escape the conclusion that China’s economy is systematically weakening and that Xi’s new priorities do not offer much hope of a rapid change. The United States and its allies can increase Xi’s challenge by aggressively enforcing trade laws, restricting China’s access to Western technology and finance, and imposing sanctions on China. with China’s brutal human rights abuses in Xinjiang and in developing countries. it is trying to mine through the Belt and Road Initiative. A prime example of such mining is the brutal mining conditions for key battery components cobalt and lithium in Africa and South America.

A major recession or acute financial crisis in China is bound to have a negative impact on the global economy. But U.S. and allied policymakers have tools that can both influence the direction of the Chinese economy and help repair some of the cumulative damage to their economies from capitalism. Chinese mercantile. The first step is to undermine the narrative of unstoppable economic progress under Xi’s leadership.

Duesterberg is a senior fellow at the Hudson Institute and the author of a new study, “Economic rift in the Great Wall: Is China’s current economic model sustainable?

The Journal’s Editorial Report: A diplomatic boycott of the Olympic Games may not be enough. Image: Mandel Ngan / AFP via Getty Images

Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

https://www.wsj.com/articles/slow-meltdown-of-china-economy-evergrande-property-market-collapse-downturn-xi-cewc-11640032283 China’s economic slowdown

Ethan Gach

TheHiu.com is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – admin@thehiu.com. The content will be deleted within 24 hours.

Related Articles

Back to top button