China is on the verge of economic and social implosion

The Telegraph features an article on Xi Jinping’s backward priorities and strategic overreach, alleging they are undermining Beijing’s legitimacy. Caliber.Az reprints the article.

The West is waking up, as usual late in the day, to the fact that the post-Covid economic rebound that Beijing has stridently heralded since the start of 2023 is simply not going to happen.

Headwinds that have been worsening gradually for at least a decade are now turning into a perfect storm that even the most ardent People’s Republic of China apologist can no longer ignore.

What should have been the mainstays of a vibrant market-linked Chinese economy have snapped; the eyes of the world, which stands to suffer as a result, are fixed on what could be a mighty shipwreck in the offing.

What has gone wrong, and what are the likely results for China and its globalised economic connections? 

To find the answer, we must look back to 2013, when at the end of his first year as China’s supreme leader Xi Jinping launched a program of fundamental economic reforms that would reduce interventionist government control over key economic drivers, limiting the state apparatus to a mainly regulatory function, and bring renewed prospects for sustainable growth.

Foreign commentators applauded loudly. They noted Xi’s bold assertion of personal authority, and judged that he had the vision needed to lift China out of the morass of inefficiency and nepotism overseen by his predecessors.

The most senior Chinese official I have ever talked with was more sanguine. After an excellent dinner, I was told with high authority that China was at an economic and political cliff-edge as dangerous as that confronting Deng Xiaoping when he took power.

Xi’s programme must succeed; and as all of its strands were interlinked, if any one failed, the rest risked crashing down together.

And that is precisely what has happened.

Yet Xi has doubled down on centralised economic authority, re-empowered the State-owned sector, interfered with the conduct of fintech and other entrepreneurs whose stellar success outshone the Chinese Communist Party, and fallen back on the discredited ploy of constructing his way out of nascent recession.

The economy was already stagnating well before Covid hit.

Xi’s Belt and Road initiative, which contained Davos-friendly plans for economic globalisation, also harboured more strategic ambitions.

Its core aims were to export China’s over-reliance on concrete and steel, and to build debt traps wherever China felt the need for coercive political and military traction.

Trade tension with the US and general Western dismay at abuses in Xinjiang wore away the façade of China as the benign promoter of world-wide ‘win-win’. Since the pandemic, that part of the ‘China Dream’ has gone forever.

When Xi Jinping was forced to abandon his obviously ineffective lockdown policy at the end of last year, it seems that this was spurred by recognition of the dreadful harm it was doing to the economy, combined with signs that the Chinese people simply could not bear being locked down much longer.

According to the Party, ‘business as usual’ and vibrant growth would soon return. It has not.

Exports, on which the economy still greatly relies on, have been eroded by foreign alarms over dependence on Chinese sourcing chains which, disrupted by lockdown, are in domestic disarray anyway.

New, politicised regulatory lawfare harasses and deters the most loyal foreign business partners.

Erstwhile aspirational Chinese home-buyers have lost their appetite for risking their savings on millions of houses that most likely will never be built.

Youngsters who might have once hoped for decent jobs that played to their skills, including in (relatively) private areas of the fintech world, found these prospects had faded due to Xi’s political putsch against China’s best-known entrepreneurs.

Many have given up all hope of marriage, children and a better future. The Chinese government looks on as youth unemployment has steadied at over 20%, with little prospect of improvement.

Xi’s strange ‘Dual Cycle’ formulation for building growth on self-reliance at home and commanding domination in global markets for new technology, is patently now as impracticable as it looks on paper. 

Domestic consumer confidence is hitting record lows. The yuan, badly undermined during Covid, continues to spiral down, as do its chances of ever becoming a world reserve currency.

The political and economic reforms needed to reverse this are simply not deliverable by the Chinese Communist Party-state.

Misled by Vladimir Putin into sharing Russia risk over Ukraine, Beijing has moved fast to secure the huge energy supplies needed to revive anything like steady growth by bailing out its proxy with suitably low-priced, strategic-scale Russian gas and oil contracts – carefully balanced elsewhere to avoid the risk of over-dependence on Russia alone.

Tensions over both Ukraine and Taiwan may further alienate China from Western liberal economies – including Europe – on which it has always relied far more for export profits than Russia and a few other authoritarian dystopias with which Beijing is now closely aligned.

In parallel, recent attempts by China to mould Brics into a new multipolar spearhead against US economic hegemony look hopeless, since China’s dominance of the group is irredeemably asymmetric and its aims self-interested.

But the biggest problem boils down to the Chinese Communist leader himself. The motto over his elite precinct next to the Forbidden City is Mao’s dictum ‘Serve the People’.

Never has this been further from the truth. Xi is Leninist to the core; Party politics first, economics and ‘the people’ second.

But can he truly imagine that stepping up war-mongering over Taiwan, threatening Japan and South Korea, squandering billions of redundant nuclear warheads and propping up Putin’s wickedness in Ukraine will assure the eternal obedience of the younger, educated generation on whom China’s ‘Great Rejuvenation’ actually depends?

They are unlikely to take solace in such futile, risk-laden distractions. Cries of desperation echoing in Shanghai speeded the end of lockdown. What other, more transformational protests may yet lie in store?