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A full pivot to war preparations is unlikely, but China will continue to shift toward a fully centralized economy.
As a result of the far-reaching consequences of the COVID-19 pandemic, emerging anti-ization sentiments, and increasing geopolitical competition, the landscape of the economy has undergone truly extensive transformations.
China has also felt those changes, unlike in the era of globalization. China’s private companies are grappling with increasingly demanding situations in their operations. The business environment is experiencing a persistent deterioration, leading to a notable erosion of long-term market confidence. .
Geopolitical issues are now causing apprehension among foreign corporations contemplating making an investment in China. On the one hand, there are considerations about possible sanctions and restrictions by the Western world, while on the other, there is a palpable concern that China could react disproportionately. to Western stocks, putting pressure on foreign investment.
At the same time, consumers, influenced by unfavorable expectations about the economic outlook, employment, expanding income sources and capital markets, are seeing their confidence particularly weakened, a trend reflected in China’s consumption and investment figures.
Taking all these factors into account, the long-term trajectory of the Chinese economy has given rise to prospects. Within the country itself, some have proposed that China deserves to move toward a “war economy. “According to this view, China’s investment methods deserve to align with this principle, concentrating on the military industry, complex technologies, food security, sourcing and marketing cooperatives, large-scale networked canteens, and low-end consumption. On the contrary, the promotion of high-end consumption, big-city methods, and individual consumption wealth creation deserves to be discouraged.
However, the truth is that it is highly unlikely that China will engage in a full-blown war. Historically, a “war-driven” economy has proven incompatible with a filthy rich economy. If the focus is on war, the economy suffers AND vice versa. It should be borne in mind that sustained war preparedness, subordinating the economy to this objective, is not synonymous with general investment in defence.
The logic of the war economy has one main flaw. In such circumstances, the economy becomes a long-term burden, either sacrificed by war or burdened by a colossal military apparatus and its lack of really broad economic support. Infrastructure is a materialized debt, which requires upfront investments and involves constant maintenance costs. Regardless of the type of infrastructure, an excessive amount inevitably leads to repayment obligations, which means that there is an inherent incompatibility between a “war” economy and a sustainable economy.
If a war-driven economy is not China’s chosen path, the future Chinese economy is more likely to gravitate toward centralization. This economic model, characterized by dominance from state power, achieves control over resources. The centralized economy is distinguished by two features.
The first is effective and strategically spaced policy, which implies that the Communist Party or giant state-owned enterprises will exert their influence over almost any industry of significant value. This includes classic sectors such as advertising banking, insurance, securities, telecommunications, oil, coal. , cereals, electricity, infrastructure, automobile production, and critical mining, where central or state-owned enterprises already dominate. However, even industries such as real estate, semiconductors, venture capital, credit card clearing, virtual generation, and asset control, all spaces historically governed through personal corporations, are gradually turning to this centralized economy model.
Second, there will be a dominant concentration in competitive spaces. While personal corporations have been the major players in spaces characterized by competition in the market, such as the internet, retail, textiles and apparel, web finance, photovoltaics, electric vehicles, and batteries, under the centralized economy model, the central government will systematically control almost all personal corporations through policy frameworks.
That said, a centralized economy is not synonymous with a planned economy, and this is basically due to the infusion of a market element. Unlike the era of the planned economy, when there was no market in China, the centralized economy style recognizes the lifestyles of a market that will continue to expand with economic growth, albeit subject to some extent to a central matrix. Important projects, as well as fiscal and monetary resources, can be exploited for the indirect market within this framework.
As things stand, China’s central government would most likely exert more influence over key strategic sectors through central companies in the future, and at the same time, the country’s political systems and resource allocation would likely allow for some degree of hypercompetitive sectors occupied through personnel. Therefore, market entities and government institutions, not only in China but also in other countries, deserve to prepare to adapt to the coming changes.
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As a result of the far-reaching consequences of the COVID-19 pandemic, emerging anti-ization sentiments, and growing geopolitical competition, the economic landscape has undergone truly extensive transformations.
China, too, felt these shifts, distinct from the era of globalization. China’s private enterprises are grappling with escalating challenges in their operations. The business milieu is witnessing a persistent deterioration, prompting a discernible erosion of confidence in the future market.
Geopolitical issues are now causing apprehension among foreign corporations contemplating making an investment in China. On the one hand, there are considerations about possible sanctions and restrictions by the Western world, while on the other, there is a palpable concern that China could react disproportionately. to Western stocks, putting pressure on foreign investment.
At the same time, consumers, influenced by unfavorable expectations about the economic outlook, employment, expanding income sources and capital markets, are seeing their confidence particularly weakened, a trend reflected in China’s consumption and investment figures.
Taking all these factors into account, the long-term trajectory of the Chinese economy has given rise to prospects. Within the country itself, some have proposed that China deserves to move toward a “war economy. “According to this view, China’s investment methods deserve to align with this principle, concentrating on the military industry, complex technologies, food safety, sourcing and marketing cooperatives, large-scale networked canteens, and low-end consumption. On the contrary, the promotion of high-end consumption, big-city methods, and individual consumption wealth creation deserves to be discouraged.
However, the truth is that it is highly unlikely that China will engage in a full-blown war. Historically, a “war-driven” economy has proven incompatible with a filthy rich economy. If the focus is on war, the economy suffers AND vice versa. It should be borne in mind that sustained war preparation, subordinating the economy to this objective, is not synonymous with investment in general defence.
The logic of the war economy has one main flaw. In such circumstances, the economy becomes a long-term burden, either sacrificed by war or burdened by a colossal military apparatus and its lack of really broad economic support. Infrastructure is a materialized debt, which requires upfront investments and involves constant maintenance costs. Regardless of the type of infrastructure, an excessive amount inevitably leads to repayment obligations, which means that there is an inherent incompatibility between a “war” economy and a sustainable economy.
If a war-driven economy is not China’s chosen path, the future Chinese economy is more likely to gravitate toward centralization. This economic model, characterized by dominance from state power, achieves control over resources. The centralized economy is distinguished by two features.
The first is the effective coverage and control in strategic fields, implying that the Communist Party or giant state-owned enterprises will exert control over nearly all industries with significant value. This includes traditional sectors like commercial banking, insurance, securities, telecommunications, oil, coal, grain, electricity, infrastructure, automotive manufacturing, and critical mining, where central or state-owned enterprises already wield dominance. However, even sectors like real estate, semiconductors, venture capital, bank card clearing, digital technology, and asset management – all areas traditionally dominated by private enterprises – are gradually leaning toward this centralized economy model.
Second, there will be a dominant concentration in competitive spaces. While personal corporations have been the major players in spaces characterized by market competition, such as the Internet, retail, textiles and clothing, Internet finance, photovoltaics, automobiles, electric power, and batteries, under the centralized economy model, the central government will systematically control almost everything. personal businesses through policy frameworks.
That being said, a centralized economy does not equate to a planned economy, and this is primarily due to the infusion of a market element. Unlike the planned economy era, when there was no market in China, the centralized economy model acknowledges the existence of a market that will continue to expand with economic growth, albeit subject to a certain degree of central control. Significant projects, along with fiscal and financial resources, can be leveraged for indirect control over the market within this framework.
As things stand, China’s central government will most likely exert more influence over key strategic sectors through central enterprises in the future, and at the same time, the country’s political systems and resource allocation would possibly allow for some degree of hyper-competitive sectors occupied through personnel. Therefore, market entities and government institutions, not only in China but also in other countries, deserve to prepare to adapt to the changes ahead.
As a result of the far-reaching consequences of the COVID-19 pandemic, emerging anti-ization sentiments, and growing geopolitical competition, the economic landscape has undergone truly extensive transformations.
China has also felt those changes, unlike in the era of globalization. Chinese private companies are facing increasingly demanding situations in their operations. The business environment is experiencing a persistent deterioration, leading to a perceptible erosion of market confidence in the long term.
Kung Chan is the founder of the Beijing-based ANBOUND tank and a renowned Chinese expert on geopolitics and public policy.
He Jun is director of the Center for Research in Macroeconomics and a senior researcher at ANBOUND.