[ad_1]
When much of the world was hit by the Great Recession of 2008-2009, China weathered the storm and propped up the global economy through massive government spending efforts.
A repeat of the China-led recovery seems unlikely as the world is “dangerously close” to a global recession on the back of Russia’s war in Ukraine and the three-year COVID-19 pandemic. .
The country’s economy expanded by just 3% in 2022. Growth is expected to remain modest in his first quarter of 2023, before picking up strongly in the second half of the year, according to a survey of 37 of his economists conducted by Nikkei in December. The average GDP growth announced by this group was 4.7%, with the majority of projections he had between 4.0 and 5.9%.
But even the most optimistic recovery scenario for China does not bode well for a return to the fast growth rate the country has grown accustomed to for decades. China’s GDP has averaged nearly 10% annually since Beijing embarked on his economic reforms in 1978.
The world’s second-largest economy has been in a turbulent state since the pandemic first began. Despite initial optimism about a 2020 rebound, repeated crackdowns on the private sector and stringent zero COVID lockdowns have disrupted supply chains and undermined investor confidence. And he got even worse news in January. Last year, the country’s population fell for the first time in her 60 years, raising worrying questions about its future workforce.
Now, with President Xi Jinping effectively establishing himself as China’s leader for life and the country finally transitioning from coronavirus-free, can we expect China to return to sustained high growth?
Short answer: No, China’s era of double-digit growth is almost certainly over, economists and analysts told Al Jazeera. The rate of growth China can sustain for years to come will largely depend on how Beijing adapts to the impact of the structural challenges facing its economy and President Xi’s new priorities.
rapid ascent, quiet descent
China’s high GDP growth over the years means that the Chinese economy has ballooned more than tenfold from $1.2 trillion to nearly $18 trillion between the turn of the century and 2021, according to World Bank data. . In contrast, the world’s largest economy, the United States, has a GDP more than double what it did in 2000.
However, economists interviewed by Al Jazeera estimate that China’s growth will slow to 2-5% in the next few years.
Even that masks changes already underway, said Beijing-based economist Michael Pettis, a senior fellow at the Carnegie Endowment for International Peace. Focusing on GDP figures risks missing the forest for the trees. Such figures only give an incomplete and outdated picture of the Chinese economy. “The era of high growth appears to be coming to an end numerically, but in fact, in terms of productive investment, it ended about 10 to 15 years ago,” he told Al Jazeera. Told.
Pettis said GDP (originally used to measure Western economies) was not built to capture anomalies caused by China’s “soft budget constraints”. For example, sewerage systems built in the Gobi Desert and Beijing could add the same value to China’s GDP despite having little economic value.
“[In China]if politically necessary, can continue to lose money for a very long time … but that doesn’t reflect the underlying productive capacity of the economy,” he said.
Most economists seem convinced that China’s growth model so far has taken off. However, the future is uncertain as the country’s economy is at a major turning point.
Aging population, declining productivity
Gone are the unique demographic and economic conditions that China has leveraged to achieve unprecedented growth over the past few decades.
The vast labor pool that has supported China’s low-cost industrial base is shrinking as the population ages rapidly. The country’s declining population in 2022 follows years of declining fertility rates.
China will be overtaken by India as the world’s most populous country this year as the shift by multinationals to move manufacturing to other parts of Asia accelerates, including Vietnam, Malaysia, India and Bangladesh.
Heavy debt investment in real estate and infrastructure, which has historically driven China’s growth, has also plateaued. Hung Tran, his senior fellow at the Atlantic Council, said the returns those investments have brought are declining.
China’s total factor productivity (a measure of how much output the economy actually produces as a percentage of its input) is no longer growing as it used to. Prior to 2008, productivity growth averaged 2.8%, but since then has slowed to just 0.7% per annum.
This has pushed many over-leveraged companies and municipalities to the breaking point, as evidenced by the 2021 bankruptcy of Evergrande, the nation’s largest real estate developer.
Certainly, China’s leaders could do something to ease the pain of the transition. The official retirement age for men (60) and women (55) could be raised to 65, “allowing us to increase labor force participation in the economy. This is a measure that Japan has successfully adopted,” Hung said. said Mr. But even that may only partially delay the crisis. After peaking at just under 1 billion in 2015, the proportion of China’s population in her 15- to 64-year-old group is already shrinking.
Abolishing the hukou system, which ties social benefits to hukou registration, could increase levels of urbanization and sustain China’s workforce, Hung said. At present, the system often leaves migrant workers in cities without access to state benefits such as public schooling, acting as a deterrent to further urbanization.
Building out China’s advanced digital infrastructure to automate manufacturing could also help keep the industry productive.
But as the Chinese government seeks to soften an otherwise tumultuous descent to low-growth heights, its political leadership is setting new priorities on China’s footsteps.
What Xi Wants: Look Inward
Xi has shifted the focus of Beijing’s policy away from the ‘grow at all costs’ mantra pursued by previous post-reform leaders. Instead, he emphasizes “quality growth,” which guides his current five-year plan for China. It is part of President Xi’s “new development concept,” which prioritizes resilience to external pressures and a more equal distribution of China’s wealth.
Essentially, the aim is to reduce China’s reliance on export-led growth by building an economy driven by domestic consumption, experts say. Strong domestic markets act as a buffer against shocks from a volatile global trading system and Western sanctions. China’s new strategy also aims to reduce China’s carbon footprint while pursuing cutting-edge technologies such as advanced semiconductors and quantum computing. Developing these technologies domestically has become even more important for China as the United States imposes severe export control restrictions aimed at crippling China’s chip industry.
But can “quality growth” lead to the kind of runaway growth rates that have come before? “Theoretically possible, but never before in history,” says Pettis. Told. “Consumption is key here.”
Household spending as a percentage of total GDP will remain around 38% by the end of 2021, well below the global average of 63%, making China one of the lowest consumption levels among the world’s major economies.
“Unless you can get that surge [household] Consumption, GDP will be around 2-3% at most,” he said.
What Slow Growth Means for China and the World
A slowdown in China’s growth engine affects everyone, but not in the same way.
Many countries, especially those that have become dependent on China as a major export destination, will feel the drop in demand acutely. The speed at which countries can pivot to other fast-growing emerging markets such as India and Southeast Asia will greatly determine the winners and losers during this transition.
The economic slowdown will also affect the geopolitical balance of power. If China reaches its economic peak in the next decade, the Chinese dream of surpassing the United States to become the world’s largest power seems inevitable. Such a scenario could prompt Beijing to take bolder actions against what it sees as “core interests”, such as Taiwan’s position at the height of its power, experts said. warns.
Economists are also predicting turmoil within China.
Adopting the Maoist-era catchphrase “co-prosperity” as a guiding economic principle, Xi turned Beijing’s focus on tackling inequalities from housing to health care to education. Common prosperity has also become the rhetoric of heavy-handed market intervention, although implementation details are unknown. For example, the CEO of a Chinese tech company pledged billions of dollars to the movement shortly after the crackdown on companies with a combined market capitalization of over $1 trillion.
“Common prosperity is not redistribution in the sense understood by Western welfare models,” said Hong Kong-based Alicia Garcia Herrero, chief Asia-Pacific economist at investment bank Natixis. , China has not increased the corporate tax rate by 15-25%.
Instead, the Chinese Communist Party (CCP) will target the accumulation of excess wealth for redistribution, but “who and how will be decided on the fly,” she said.
Still, this shift in Beijing’s focus on “splitting the pie” is itself an acknowledgment of China’s new reality. For decades, maintaining high economic growth has played a central role in the legitimacy of the ruling Chinese Communist Party. But in this new era of slow growth, the nominally communist government may need a new narrative to maintain its legitimacy in the eyes of the Chinese people.
“Promoting common prosperity is necessary to address rising inequality and wealth distribution that can lead to social discontent and insecurity,” Hung said.
If China gets it right, it could lead to “slower, but hopefully fairer and more sustainable growth,” he said. and a new social contract between the party and his 1.4 billion people.
[ad_2]
Source link
