China is well aware of one-man rule, leading to economic misfortune. Anyone who doubts this need only think of the disastrous economic consequences of Chairman Mao’s Great Leap Forward and the subsequent Cultural Revolution.
This story should raise deep concerns about the last Congress of the Chinese Communist Party, which granted Xi Jinping a third five-year term as president and complete dominance over the Party Politburo. This is particularly concerning given that China faces a series of deep-rooted economic policy challenges.
Among the most immediate challenges is the Covid pandemic. This year, under Xi Jinping’s Covid Zero policy, which involved the closure of major cities such as Shanghai and Beijing, the country’s economic growth was virtually nil. With Xi now fully in charge of the economy, there is every prospect that he will continue his costly zero-tolerance policy.
Even if Xi were to change course on Covid, he would still have to deal with with the bursting of the main real estate and credit market bubbles that formed under his supervision. This will not be an easy task, considering that this bubble is bigger than the one that preceded the US housing market crash that started in 2006. The importance of this task cannot be overstated; real estate now constitutes almost 30% of the Chinese economy and represents about 2006% of wealth
After their dramatic rise last year, house prices in China have been steadily falling. Meanwhile, Evergrande, China’s largest real estate developer, and 20 other Chinese developers defaulted on their debts.
Another long-term economic problem facing Xi Jinping is declining demographics. As a result of the previous one-child policy, its workforce is shrinking and its population is aging before the country becomes wealthy. No longer able to draw on an unlimited workforce, the country will have to find a way to increase productivity if it is to spur rapid economic growth.
Adding to China’s economic woes, there is an increasingly inflexible US trade policy. Far from lifting President Trump’s tariffs on Chinese imports, President Biden has introduced tight controls on US high-tech exports to China. At the same time, US companies are reducing their dependence on the Chinese supply chain and reducing their investments in China.
Given all these economic challenges, it does not bode well for the growth that the President Xi is undermining the country’s economic institutions and shunning people who might disagree with his approach. Even more troubling is President Xi’s apparent willingness to kill the goose that lays the golden eggs. Indeed, in his bid to consolidate economic power, Xi has declared war on China’s technology sector and even rolled back some of Deng Xiaoping’s economic reforms that underpinned China’s economic miracle.
Although these challenges do not bode well for the Chinese economy, they also threaten the rest of the world at a time when the global economy is particularly weak.
Until recently, China was the main engine of growth economy in the world and its largest consumer of international commodities. But with Xi in charge and these challenges ahead, the rest of the world can no longer rely on China, as it did in 2008, to help it pull itself out of a recession. economical. Similarly, emerging market economies can no longer rely on China to maintain strong demand for their commodity exports.
Whether there is a silver lining to the downgrade of long-term growth prospects , the fact is that China, like Russia and Japan before it, has proven to have economic feet of clay. As such, contrary to what we might fear, it will not pose a serious threat to the United States as the world’s dominant economy.
Desmond Lachman is a Senior Fellow of the American Enterprise Institute. Previously, he was Deputy Director of the Department of Development and Policy Review at the International Monetary Fund (IMF) and Chief Emerging Market Strategist at Salomon Smith Barney.
©2022 National Review. Published with permission. Original in English.
