Since Xi Jinping’s second tenure came into effect, much turmoilhas been occurred inside China. Whether its politics or military Xi has tried to firm his grip on every aspect of Chinese life. However, hisadamant to solely control everything has led to a sense of crisis and it is very much evident in the continuous downfall of the Chinese economy.
Since last few years, Chinese economy is in a deep crisis. As per a recent report by International Monetary Fund (IMF), decline of the Chinese economy is expected to continue over the next four years as well.
In its report, published on February 2, IMF predicted that the Chinese GDPwould be 4.6% for the financial year 2024, a decline from 5.4% registered in 2023.Report projected the further downfall of the GDP from 4.0% to 3.8%, 3.6 % and 3.4% for the financial years 2025, 2026, 2027 and 2028 respectively.
The report highlights a range of issues like rising unemployment, renewed stress in the property sector, rising debt, slowing inhouse investments, and rapidly aging population behind the constant downfall of the Chinese economy. The urban youth unemployment rate has reached to its highest on 21.3 percent in June 2023, about 10 percent high as compare to in 2018’.Last week, MSCI dropped dozens of Chinese companies from various indexes that would have a deep and long impact on investments coming from the West.
However, what the report doesn’t talk about is the policy failure of President Xi Jinping. The US-China trade war, reallotment of capital and loans to the SOEs, continuous crackdownonbusiness tycoons, introduction of new espionage law, unnecessary stretching of the Covid measuresand the deep-rooted Maoist ideology in terms of economy are few of the main policy failures that are destroying the Chinese economy.
First, many analysts believe thatthe China-US trade war was Xi’s personnel grudge and it was solely implemented to satisfy Xi’s ego and to glorify him as a Mao-like figure who doesn’t shy away to challenge the world’s super power and China’s main adversary— the USA.Due to this unnecessary ongoing tussle China is losing billions of dollars every year. The impact of the trade war was simply ignored as forXi, his image building among the masses is much more important than the upliftment of the fragile economy.
Second, Beijing unnecessarily stretched the lockdown measures. When the countries like India and Vietnam allowed the upliftment of lockdown measures in 2021 itself, China on the other hand continued to reinforce its covid-policies. Many analysts suggest that these measures were reinforced in order to contain the protests happening across Chinese cities where people were not happy with the local government response to the Covid pandemic.
In order to suppress these protests, China brutally reinforced Covid policies across industrial cities that had a deep impact on the supply chain further damaging the China’s export-based economy. Xi deliberately ignored the warning of experts and silenced the voices within CPC in order to strengthen his grip on the masses on the cost of economic loses.
Third, the new espionage law introduced by Beijing last year was clearly directed towards the foreigners and foreign businesses in China. Following the enforcement of this new law, US National Counterintelligence & Security Centre cautioned US businesses of increase in risk of doing business in China.
Since law came into effect last year, Beijing arrested a dozen of foreigners on the charges of espionage. The well-known case was of the arrest of executive of Astellas Pharma, a renowned Japanese drugmaker. According to a survey conducted by EU Chamber of Commerce in June 2023, more than two third of the participants accepted that is has become more difficult to do business in China. While six out of ten participants stressed that businesses have been more politicised under Xi.
Fourth, Xi’s crackdown on business tycoons has created a panic like situation among Chinese private players. Xi’s fear of unprecedented growth and power of private businessmen has grown in recent times as Xi has started a purge against them. In 2023, Hui Ka Yun, founder of Evergrande was detained. In March 2023, Zhao Weiguo, former chairman of Tsinghua Unigroup was arrested. Bao Fan, founder of China Renaissance, Xia Jianhua, founder of Tomorrow Holdings, Chen Feng and Tan Xiangdong of HNA Group are few among the long list of business tycoons either arrested or just simply made disappeared by the CPC. Disappearance of Jack Ma made the headline when he disappeared after criticising the economic policies of the government.
Fifth, according to Nicholas R. Lardy of Peterson Institute for International Economics, since Xi came to power, a sharp shift in bank credits moving towards SOE’s from private sector was recorded. In between 2012 and 2018 assets of SOE’s grew by 15% annually.
Sixth, unlike Deng, and more like-Mao, Xi is an orthodox Marxist who simply wants to control the CPC and masses no matter what the cost are. Xi believes that too much liberalization and strengthening of the private sector would be a challenge for the party and to him, and hence, he is trying to do what Mao did, i.e., limiting the liberalization of economy.
Since, 2016, Xi has followed a policy of being less reliant on debt driven property led GDP growth. In other words, he simply allowed the real estate sector to collapse. Property market covers an about one fourth of Chinese GDP and IMF has predicted that investment in real estate is determined to fall by 30% to 60% in coming ten years. However, Xi refused to pump capital in the estate market and watched the fall of Evergrande. Experts believe that fall of the Evergrande was the biggest demonstration by Xi to warn the property industry and the public enterprises that he is no longer going to save them from a crisis.
Most of these situations are deliberately created by Xi himself and this slowdown in economy is a direct threat to CPC which Xi is not willing to address. Protests against the economic policies are on rise since last year. As per the data by China Dissent Monitor, a New York-based international rights group, some 777 labour protests occurred in between September to December 2023.
Many experts are warning that China would end like Japan, and “Japanification” of Chinese economy is inevitable if suitable actions would not been taken by the higher authorities. Like Japan, China is hastily going towards a “Lost Decade” and it would be a huge blow to Xi’s ‘China Dream’.