China’s economy is at a critical moment, with various threats from outside and inside. The communist regime struggles to rescue the economy, but are their measures effective? In this analysis, we will dig down to the root cause of China’s economic perils and evaluate the possibility of a political collapse in this mazy country.
Recently, Shi Shan, an overseas expert on China’s affairs, has commented that two main factors which usually lead to the large-scale structural collapse of human society are already happening in China. Like Ancient Egypt, ancient Rome, and all past Chinese dynasties, the Mainland today is facing two devastating threats: one is War, and the other is Epidemic disease. The Russo-Ukrainian War that touches everyone in this globalization era, especially the second largest economy worldwide, and the Omicron virus worsened by the Chinese authority’s extreme prevention measures, have been destroying the Chinese communist regime via the economy. He argues that because any social system must be built based on individuals and families, wars and plagues do not necessarily directly affect individuals. Still, through economic hijacking, no one can escape. Unfortunately, it now appears that at least the signs of the Great Depression have emerged.
According to Trading Economics, the Caixin General Composite PMI, a reliable indicator of Chinese economic vitality, increased to 42.2 in May 2022 from April’s 26-month low of 27.2. Yet, May’s figure was still its third-lowest since 2005, after those of February 2020 and April 2022. A reading smaller than 50 indicates contraction and vice versa.
“Demand was under pressure, external demand deteriorated, supply shrank, supply chains were disrupted, delivery times were prolonged, backlogs of work grew, workers found it difficult to return to their jobs, inflationary pressures lingered, and market confidence remained below the long-term average,” said Wang Zhe, senior economist at Caixin Insight Group on VOA News.
According to CNBC, Goldman Sachs and other banks, including Citi, JPMorgan, and Morgan Stanley, cut their forecast for China’s GDP to about 4% after data in April showed a drop in growth amidst restricted business activity due to Covid-19 controls. These new forecasts are much below the annual growth target of “around 5.5%” that the Chinese regime announced in March.
China’s economy is now “encountering enemies from four directions (old Chinese saying).” Recently, William R. Rhodes, former chairman and CEO of Citibank, and Stuart Mackintosh, executive director of nonprofit “The Group of Thirty,” have made a brief but thorough commentary on CNBC, pointing out the four significant threats to China’s economy: “at home, in health, in debt, and in a fracturing globe.”
In this in-depth analysis, we will discover the root cause of these threats, which poses an intrinsic and survival issue to the Chinese Communist Party.
#1. An obstinate Zero-Covid policy: ‘Struggle’
“China’s zero-Covid policy, by far the toughest medical and public health response to the pandemic anywhere, is in trouble. However, China’s rigid stance on prevention paid huge dividends,” emphasized Rhodes and Mackintosh, as it could function virtually virus free in 2020 and 2021.
But the Chinese economy has been seriously hurt by extended lockdowns in dozens of cities across the country, including Shanghai—China’s financial capital and largest port—which constitutes 4% of its gross domestic product.
According to VOA, Chinese Premier Li Keqiang has admitted that China’s current job market is “complicated and severe” when the country continues “unswerving adherence” to the “Zero-Covid” policy, whose lockdowns result in a nationwide severe economic downturn.
By following a rigid Zero-Tolerance Covid strategy, the Chinese authorities seem to have created more problems than they solved. Access to food, health care, and other necessities has become a survival problem that money can’t resolve. CNN reported, “with lockdown measures turning increasingly draconian, a once almost-unthinkable topic has struck a chord with residents in the city and beyond, more so than anything else: people going hungry in Shanghai in 2022.” In videos circulating online, residents are seen protesting from their balconies.
The severe Covid-19 lockdown has even created mental illness risks, ranging from stressed-out migrant workers unable to go out to work to foreigners who shouted “I want to die” while rushing out of the blockade or college students panicking about food scarcity while living far from home.
On May 11, WHO Director-General Tedros Adhanom Ghebreyesus said that China’s Zero-Covid strategy was “not sustainable” amidst significant economic damage and the widespread frustration of hundreds of millions of people under movement restrictions. However, his opinion was quickly censored on Chinese social media and was called “irresponsible” a day later by Foreign Ministry spokesperson Zhao Lijian, Reuters reported.
China’s uncompromising approach to the epidemic is opposed to most other governments, who have chosen to live with the virus. This stubborn mindset stems from one inherent characteristic of the Chinese Communist Party: “Struggling.”
Mao Zedong said, “Battling with heaven is endless joy, fighting with the earth is endless joy, and struggling with humanity is endless joy.” The Communist Manifesto also states, “The history of all hitherto existing society is the history of class struggle.” Father of communism Engels once said that freedom is the recognition of inevitability. Mao added, “And the reformation of the world.” The communists hold that nature and humanity can be conquered by mobilizing subjective human consciousness to understand objective laws. During the Great Leap Forward, folk songs with arrogant lyrics such as “Let the mountains bow and let the rivers step aside” clearly show this foolish struggling mindset of the Communist Party. Today it manifests through Beijing’s obstinate battle against a highly contagious Covid variant.
#2. Risky external debts: ‘Deceit’
The second threat to China’s economy comes from risky external loans, which are made by Chinese entities as part of Beijing’s ambitious Belt and Road Initiative (BRI).
Rhodes and Mackintosh explained that these loans not only saddled low-income countries with enormous unsolvable debts but will also overload China’s banks with nonperforming loans. The latter will consequently worsen the economic performance of those banks, which are vital channels for Chinese domestic investment, business, and the economy.
The borrowing countries are all impoverished ones already indebted to the IMF and the World Bank, punished for decades of corrupt governments abusing public funds to enrich themselves. Differently speaking, from a financial point of view, no organization or country would think of lending money to these countries given their record. So, why is the Chinese Communist Party still so “generous”?
According to various international analyses, the real incentives for the Chinese regime behind BRI investments are gaining a military advantage, grabbing host countries’ natural resources, and expanding geopolitical influence.
For example, conforming to Chinese law, all Chinese state-owned or semi-private construction companies must build per People’s Liberation Army (PLA) standards. For example, ports, stations for freight trains, highways, and so on must be prepared to receive military vehicles and equipment. And this is the case for many of the ports being built within the BRI, which are integrated with industrial parks and support industries such as shipbuilding and replenishment services that reinforce the port’s ability to support Chinese naval vessels.
That means, whenever military conflicts happen, the CCP would be able to supply its military from any of these points away from its operational base. It would also permit Beijing to dictate regional shipping rules and escape international sanctions usually imposed by the U.S.
The ports of Hambantota in Sri Lanka, Gwadar in Pakistan, the Melaka gateway in Malaysia, and a military base in Djibouti are all under concession to Chinese companies after these countries could not pay their debt to China.
This “ugly truth” about BRI loans reveals another inherent characteristic of the CCP: “Deceit.” As clarified in the book Nine Commentaries, the CCP has relied on lies to brainwash the people and reinforce its tyranny from its early founding days and throughout successive political movements across the last century. Because deceit and ambiguity often go hand-in-hand, in the case of the BRI, the lack of transparency has been widely criticized by researchers, governments, and journalists.
According to an analysis by Wade Shepard of Forbes, the promised economic benefits and significance of BRI are highly questionable. That’s because there are no publicly stated key performance indicators, no overall institutionalization, no formal membership protocols, no founding charters, and no development timeline that is evaluated not in mere years, but decades, or even centuries.
#3. Ukrainian war: ‘Malice’
As pointed out earlier, it seems likely that China’s growth rate will be below 5% in 2022—a rate not seen since the crisis following the 1989 Tiananmen Square Massacre. Moreover, “Globalization—the engine that powers China’s economy—risks stalling under the pressure of the pandemic and Russia’s war with Ukraine,” said Rhodes and Mackintosh.
What is notable here is China’s political support for Russia, which challenges the global architecture with general rules and norms that benefit all. As the authors pointed out, choosing Russia over the globalization in which China is profoundly embedded is a shortsighted, harming economic bargain, which could lead to secondary sanctions on Chinese firms, as the U.S. has warned.
China’s non-stop backing of Russia divulges that Beijing does not care about the so-called “universal values” or “moral standards.” The communist regime can easily sell out its engagement with the global trading system for its own sake. Given the CCP’s history of killing its people, from the Cultural Revolution to the Tiananmen Massacre and Falun Gong persecution, it is easy to understand why the tragedy of the Ukrainians does not move the CCP, thus reflecting the “Malice” nature of the CCP. The Nine Commentaries points out that from its earliest days until today, the CCP has not hesitated to commit crimes such as murder, kidnapping, and so on to grow and sustain its tyranny.
#4. Real estate crisis
Last but not least, China’s economy is put on the brink of danger by the current real estate crisis, with defaults continuing. From Evergrande on down, last year witnessed a record number of defaults among Chinese developers. According to CNBC, S&P estimates that about 20-40% of property developers may run into defaults.
With property development representing 25-30% of China’s GDP, “a stumble in real estate bodes ill for the economy as a whole,” said Rhodes and Mackintosh. Most recessions are related to equity or housing busts, as shown by economists.
China’s growth model has relied mainly on real estate and related sectors in the last decades. Although these activities have managed to activate the economy and produced impressive growth figures, critics always warned that the colossal debt generated by developers was creating a real bomb. President Xi Jinping was fully aware of this risk by saying, shortly after coming to power in 2013, that China needed to “change the approach to improve the quality and returns of economic growth… to pursue genuine rather than inflated GDP growth.”
Yet, Xi Jinping’s words never turned into reality, and the speculative system continued to blow the bubble until it burst.
Is this because the housing market has been tightened with interest groups, many of which are related to corrupted Communist Party officials. Thus they are not easy to reform? Or is it because “beautiful” growth figures are of higher priority to justify the rule of the CCP, which lacks legitimacy based on democratic votes?
Conclusion and Prospect
Regardless of the reason, the imminent collapse of China’s real estate market in particular and China’s economy, in general, is deep-rooted in the inherent nature of the Chinese Communist Party mentioned above: Deceit, Malice, and Struggle.
Without lies and bloody debts, the CCP would not have grown and ruled China as it does nowadays. In other words, the characteristic feature of the Communist Party creates the disasters threatening China today, including but not limited to a devastating zero-Covid policy, bad external loans, a failing war, and a real estate crisis. These tragedies are unavoidable, given the rule of the communists.
That is to say, to genuinely tackle the problems with China’s economy, it is a must to deal with the communist regime. Experience has proven that the CCP would never change its “Deceit, Malice and Struggle” nature, as the West once daydreamed about its democratic transformation following economic openness. An ancient Chinese saying goes, “When something reaches the extreme, it reverses.” Perhaps today’s crisis will pave the way for a tremendous change in Chinese society: the perdition of the Chinese Communist Party and the revival of “Truthfulness, Compassion, and Tolerance.”