The future of China’s economy has once again attracted global attention due to a storm of protests by the owners of “unfinished buildings” in Jiangxi Province. According to the annual economic forecast released by the Asian Development Bank on July 21, the GDP forecast for developing Asian countries has been lowered from 5.2% in April to 4.6%. China’s forecast was revised down from 5% to 4%.

Currently, a great uncertainty has arisen for the global economy due to:

When uncertainties in economic growth increase, manufacturing production and consumer consumption decisions will be badly impacted, ultimately affecting the Chinese economy’s fate.

Besides Asian Development Bank, World Bank, and The Economist, consultancy firms and investment institutions such as Goldman Sachs and Nomura have significantly revised China’s economic growth rate. The ‘Zero-covid’ policy has hurt the Chinese economy, and it will be difficult for this country to achieve the economic growth rate target of 5.5%.

Before Shanghai was locked down, China maintained a loose monetary policy. At the same time, the global central banks began to pay attention to inflation. They adopted a monetary tightening policy, whereas China wants to increase financial liquidity to maintain economic stability. Their most important target is controlling domestic prices in China while the global market is under the high pressure of price increases, especially in raw materials and energy prices.

However, the Chinese regime has to sacrifice domestic price stability in exchange for liquidity in the financial market, showing that China’s internal economy has more critical issues than inflation.

Loose monetary policy has had three impacts on China’s economy.

First, domestic consumption faces an adverse effect from continued price rises on consumers’ disposable income.

Second, the capital market faces the pressure of capital transfer from the continuously widening interest rate gap between the U.S. dollar and the RMB.

Third, a loose monetary policy cannot avoid the collapse of manufacturers due to insufficient financial liquidity, which will lead to mass layoffs and unemployment, which will cause economic and social instability in China.

If the benefits of the third effect on the Chinese economy outweigh the first and second effects, China’s companies can overcome the mismanagement crisis. However, companies with poor health, unable to withdraw from the market, will face China’s economic downturn, and China’s financial market will become increasingly unsound.

Under this circumstance, the driving force of China’s economic growth will inevitably rely more on the Chinese regime’s consumption and investment by state-owned enterprises.

Besides, although the world’s major economic forecasting agencies continue to revise the Chinese economy downward, there will inevitably be many discussions on whether the Chinese economy will decline rapidly. Governments around the world have very different views of China. The transfer of the global supply chain and destruction of the market system has never happened before in China.

Although China’s political system is utterly different from that of a democratic country, the growth of China’s economy in the past also came from the operation of the market mechanism and the democratic countries. If these two factors do not exist, it will be difficult for China to survive the economic crisis as well as it has in the past.

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