According to experts, China’s economy is facing six major challenges that will affect Xi Jingping’s re-election.

The world’s second largest economy is experiencing a sharp slowdown and expected to miss the government’s growth target of 5.5% this year. However, Xi Jinping has recently emphasized the need to protect the economic growth target.

But there are various factors contributing to the sluggish economic growth in China.

At the China Macroeconomic Forum held on June 25, scholars and experts pointed out some factors that have had negative impacts on business confidence, consumption, and growth. They include the COVID-19 epidemic, geopolitical conflicts among others.

Wang Yiming is vice chairman of the China Center for International Economic Exchanges.

He said at the event that, from the current situation, the economic growth rate in the second quarter is likely to be only around 1%.

Wang said that it is very difficult to achieve a growth rate of 7-8% in the second half of this year, so that the full year growth could reach a 5.5% target rate.

He said after China was hit by the Covid-19 pandemic in early 2020, the economy has recovered after that, but the current situation is very different.

Wang Yiming noted that China’s economy faces six challenges in the second half of 2022.

First, the Covid epidemic prevention and control is posing challenges. Omicron variant’s spread is very strong, and there are great uncertainties in the changes of the epidemic. The difficulties in making accurate predictions have brought a great impact on businesses, leading to their investment risk appetite to decline.

In addition, the pandemic has consumed a lot of reserves, Chinese people’ tolerance is weaker, and their willingness to consume is declining.

Second, China faces great changes in the external environment.

Wang said that at present geopolitical conflicts are intensifying, global inflationary pressures are rising sharply, and the risk of food and energy crises is increasing. Besides, the China-U.S. relations become more uncertain, and the complexity of the external environment is rising significantly.

Third, weak demand. 

Wang Yiming said that the Covid epidemic has hit the Chinese consumers hard, and households tend to be cautious in spending, especially on durable goods. For example, the purchase of automobiles has not recovered significantly.

Meanwhile, investment is also facing insufficient stamina. Wang explained that in the earlier stage, investment in manufacturing was strong because it was driven by exports. But now with rising costs and fewer orders, the growth momentum is weakening.

Investment in real estate has still seen negative growth, and the downward is expected to continue.

In terms of infrastructure investment, the growth rate is relatively fast. However, it is still constrained by insufficient projects, greater local financial pressure, and debt control.

Fourth, the dynamics of economic recovery are changing. 

Wang pointed out that China’s economic growth fell by 6.8% year-on-year in the first quarter of 2020. But the recovery speed after that was very fast, which depends on the development of the digital economy, the drive of real estate and the rapid growth of exports. But those conditions have changed, and the situation is markedly different now.

He said that the development momentum of the digital economy is slowing down, the valuation of Internet companies is declining, and the venture capital has fallen significantly in the past two years.

In the first quarter, the number of new start-up companies in China declined significantly.

Fifth, market confidence and expectations have not yet recovered. 

Wang said that at present, the orders received by Chinese companies are obviously insufficient. Due to rising costs, the operation of small and micro enterprises is very difficult, which has a great impact on their prospects. Some companies have delayed and reduced their production expansion plans.

Sixth, Chinese major corporations face high employment. Firms scaled down new jobs plans, and layoffs are also increasing.

Data from the National Bureau of Statistics shows that China’s urban unemployment rate surged to 6.1% in April, the highest jobless rate in two years.

The current economic situation is likely to affect the political future of President Xi Jinping.

Dr. Cheng Xiaonong is a Chinese political and economic scholar. He said that the poor economic situation will create a sense of crisis among the top leadership of the Chinese Communist Party.

Cheng said that the economy is not in good condition. If Xi is re-elected, the scapegoat will be someone else. And if he is not re-elected, he will be the scapegoat.

China affairs expert Lin Heli believes that Xi Jinping will be re-elected as “leader” at this year’s 20th National Congress of the Communist Party. The reason is that Xi has firmly controlled the army and armed police through various means.

Many experts and observers also agree that Xi will remain in power after the 20th Party Congress unless his own health fails.

But some observers also pointed out that all dictatorships have the potential to collapse suddenly. The history indicates that the powerful dictatorship and autocratic regimes vanished in an instant, such as the Soviet Union, or a series of Arab governments in the “Arab Spring.”

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