A must-have detail of government under Chinese President Xi Jinping is that primary policies are presented with wonderful fanfare only to be abruptly abandoned, without even acknowledging their past existence. China’s whirlwind shift from 3-year “0 COVID” policy to 0 COVID policy, following a wave of protests vanquished in 2022, is only the pinnacle of those changes, all of which can be attributed to its role in undermining the credibility of the Chinese Communist Party (CCP) and its leader.
Xi’s cherished policy of “unusual prosperity” was also short-lived. After prematurely signaling victory over the pandemic in May 2020, Xi has made non-unusual prosperity the mantra to boost the economy and make society more just and equal. The government has introduced high-profile antitrust and antitrust investigations to restrict Big Tech’s success and assert greater control over the content and distribution of innovation culmination. Hundreds of billions of dollars in market capitalization evaporated, crushing corporations that increased personal satisfaction desires at the expense of the pursuit of party ideology. At the CCP’s fall 2021 meetings, a historic solution that hit Xi along with Mao Zedong in the pantheon of Chinese leaders invoked “unusual prosperity” 8 times.
However, until mid-2022, with the rise of the notoriously unproductive state sector, more difficult than it had been in decades, but with the failure of the recovery, official references to an unusual prosperity have still disappeared. A 17,000-word report on the economy submitted to the National People’s Congress through Premier Li Keqiang in March 2022, discussed shared prosperity only once. Two months later, Xi and his most sensible economic adviser, Liu He, reversed course entirely, issuing a series of general statements in favor of personal generation initiatives. , encouraging the stock market. By December 0, COVID and a not unusual prosperity had been buried in the graveyard of political dogma.
But a wonderful leader wants a wonderful policy, and in Xi’s China there is a new one. In December 2022, the government announced the less flashy but more reassuring “consumption-led expansion”: the main policy of an ambitious new 12-year economic plan. plan. For the first time in the history of fashionable China, the country’s planners would prioritize “expanding household consumption” over “efficient investment” as a long-term strategy. State that orders or subsidizes corporations to build and produce according to dictation.
Almost universally, economists have praised consumption-led growth. Indeed, if done correctly, this policy shift would help China fall into the dreaded middle-income trap, a phenomenon in which falling productivity and declining returns on investment in emerging countries lead to stagnant living standards.
However moderate, the consumption-driven expansion in Xi’s China is doomed to failure. As Xi has done in the past, he will step away from politics once the inevitable backlash from hardcore constituencies, adding state-owned enterprises, local governments, and the national security bureaucracy is installed. The Chinese people, knowing that the leader will bury the initiative at the first signs of fear of the party, will be reluctant to embrace it. The highest savings rate in the world, even more than its meager income for the hard times ahead.
Consumption-driven expansion aims to solve a very genuine problem. Chinese household spending accounts for just 38 percent of gross domestic product, nearly 30 percentage points below the global average. Investment accounts for 43% of China’s GDP, and under Xi, the economy is increasingly dependent on state spending in sectors it considers “strategic. “To boost this investment, the government limits the percentage of GDP that goes to families and increases the percentage that goes to companies and privileged sectors. of probably unrelated policies, such as lowering the exchange rate to decrease net imports, making tax rates regressive, keeping social safety nets weak, restricting the rights of urban migrants, banning open-air unions across the party-controlled continent. All China Federation of Trade Unions, renouncing dividends in state-owned enterprises and capping bank deposit rates.
Because Chinese lenders pay depositors far less than they would in a competitive market, they can lend to state-owned and state-sponsored enterprises at below-market rates. save you from bankruptcy. In the stock market, the government prevents disadvantaged sectors from accessing investors’ capital (using published “red lights”) or warns investors to stay away from those sectors (using “yellow lights”). They also impose arbitrary “yellow lights” rectification of products and facilities, ranging from fintech to gambling, whose entry is deemed contrary to “social surveillance. “Online store Alibaba has been subject to such requests, requiring it to replace and report on its business practices Chief Executive Jack Ma publicly criticized China’s regulatory regime in October 2020.
The ultimate visual result of state-led investment has been the construction of large housing and infrastructure, accompanied by a relentless decline in productivity and dizzying debt levels across the economy. In the short term (which can last for many years), a country can build its GDP simply by digging trenches and filling them. But eventually, default or inflation is mandatory to extinguish debt, and financing to dig trenches dry.
However, with a new policy regime aimed at boosting personal consumption levels, primary positive developments can be expected. Real estate speculation, which has wreaked havoc on the economy and which Xi has condemned, will decline. The salaries and living standards of the giant base of Chinese citizens will increase. Spending and investment will shift to the most productive economic sectors, especially services, which are governed through personal and non-politically favored state-owned enterprises. Investment returns will accumulate and the expansion of bad debt will slow. Imports will accumulate and the surplus in the existing account will move closer to balance. And finally, economic and political tensions with global market economies will begin, after years of relentless expansion, to subside.
China has the world’s savings rate.
However, the consumption-led expansion will clash with the government’s more immediate economic priorities. The first is to stimulate GDP expansion in the short term. Despite Xi’s condemnations of property speculation, he has never allowed GDP figures, which are fueled by bullish bets on real estate. — to make a decision through market forces. Consider how China’s commercial and housing loan markets work. While in the EE. la fall in space costs driving more corporate lending and counteracting the decline in corporate lending with incentives to encourage the purchase of real estate. all this to ensure the achievement of the desired GDP through the government.
This time is no different, despite consumption. As the first symptoms of a post-pandemic recovery have worn off, Chinese policymakers have reverted to the old asset aid playbook, in addition to the sweeping 16-point bailout implemented last November. Therefore, there is no explanation as to why Xi is willing, now, to leave economic expansion and the fortunes of “strategic” sectors at the mercy of customer whims. As foreign corporations or competition from state-owned enterprises, it will be repressed.
There are other reasons for pessimism about inward-led growth. The political backlash that will accompany any significant investment shift to entry will be fierce. As higher production is true to customer demand, exporters will suffer. Highly indebted local governments, which through the control and sale of land-use rights have become difficult economic players in China, will have fewer resources at their disposal when the gigantic Xi-era structural projects cease. Many municipalities no longer pay salaries, auction off schools and cut pensions. After years of claiming credits for solid, national, construction-inflated urban growth, the central government will not escape the wrath of unpaid municipal employees, the corporations that hire them, and the netizens who use them on social media.
The central government, on the other hand, will have, as a component of a real consumer boom, much less who manufactures what, in what quantities and for what purpose. This truth will clash head-on with new systems promoting domestic generation national “security” projects aimed at restricting the ability of foreign companies to collect and disseminate market data or to “make a fuss” of government policy on issues ranging from generation to human rights. In fact, foreign corporations’ confidence in China, despite customer initiative, has dropped significantly over the past year. European business confidence in the country has reached an all-time high.
Early signs suggest that Xi’s clientelist crusade is already failing badly. In March 2023, China’s exports increased by 14. 8% and imports fell by 1. 4%, generating a huge monthly industry surplus of $88. 2 billion. These data reflect weak domestic demand and a corresponding need to push goods abroad, as opposed to consumption-led growth. And the government can’t rely on a new generation of customers to save its plans. Youth unemployment exceeds 20%. No wonder China’s main inventory index is down 20% this year. This drop was accompanied by a stable fall in copper and iron ore prices, indicating continued weak demand.
While spring economic data showed a much-anticipated rebound in demand for luxury and household goods after the shutdown, broader measures suggest widespread customer pessimism. Savings, after exploding in 2022, accelerated further after the announcement of the customer campaign. The yuan rose 41% in the first quarter of 2023, year-on-year, after reaching a record $2. 6 trillion in 2022. Loans fell more than 50% in 2022, reflecting a decline in home sales. Households with excess money paid mortgages upfront instead of buying cars or other discretionary items. According to a quarterly survey conducted by the People’s Bank of China, there has been a massive increase in the preference for saving rather than spending or investing. 58% of Chinese respondents now prefer to save, up from 45. 7% in the year before the 2019 pandemic.
Weak domestic demand correlates with weaker household purchasing power and deteriorating balance sheets. Between 2008 and 2022, household debt as a percentage of GDP increased from 18% to 62%. % of China’s GDP (twice the share of the United States), it is suppressing demand for commercial fabrics such as steel, wood and chemicals, as well as customer durable goods such as appliances, furniture and lighting. At the same time, local governments saw revenues from state-owned land-use rights, a major source of public spending, fall by as much as 27% year-on-year in the first quarter of 2023, a demand for further cuts.
The immediate ageing of the population is also suppressing demand. A report published by the Chinese Academy of Social Sciences in 2019 warned that China’s national social security fund will be depleted by 2035. Amid declining public confidence in the state’s ability for the elderly, young Chinese have poured cash into a recently introduced personal pension scheme, draining more budget from daily consumption.
Despite those monetary and demographic setbacks, the Chinese government continues to flood state-owned enterprises with new fiscal, monetary, and regulatory interventions to increase production in strategic sectors of the state. than those of the parties.
If China were as serious about building an intake-oriented economy as it was about maintaining a one-party state, it wouldn’t really have to look very far. (or third according to the so-called purchasing force parity). Although never governed democratically, Hong Kong, at least until Beijing abandoned its commitment to “one country, two systems,” an independent judiciary, the rule of law, and less interference in business is consistent with customer relations and sovereignty than any other political regime in Asia. Porcelain.
But Xi will never allow a customer-driven economy to take hold on the mainland. This follows from the conflicts it stoked in Hong Kong through the imposition of the 2020 national security law, which allowed Beijing to prosecute protesters at will. For this reason, the number of U. S. corporations with regional bases in Hong Kong fell to an 18-year low in 2021, and the net exodus of Hong Kong citizens more than doubled in 2022, to 60,000. A survey by the European Chamber of Commerce found that at most of all European companies in the city pulled out totally or partially this year. And corporations, domestic and foreign, which were the biggest beneficiaries of customer demand, especially on social media, were the maxims targeted by the law.
A consumer-driven economy demands a maximum degree of individual autonomy and freedom of publicity to satisfy citizens’ ever-changing desires, demands that the CCP under Xi has been increasingly unwilling to meet. The policy of consumption-driven expansion would possibly have been presented with the sincerity that regularly accompanies ignorance of collateral consequences. But as those consequences become clearer in Beijing, he is destined to suffer the same silent death and nameless burial as Xi’s past initiatives.