The Chinese economy will still be important to global business, but it will no longer serve as the engine of growth because of this transformation. While those on the outside will be able to observe the economy, it will become increasingly difficult to understand what’s going on inside. But it will still advance, but much slower. A big black blob is forming in Chinese economy.
This month, China’s blob era was thrust into the international spotlight when the Chinese administration declared it would discontinish displaying the jobless rate among the younger generation on its monthly jobs report. July’s figures, shockingly, hit a record-breaking 20.5%. This data had become a worldwide symbol of China’s failure to reinvigorate their economy ever since President Xi Jinping abolished COVID-19 restriction measures – now it has been eliminated.
The disappearance of the youth unemployment report caused a stir, but it is not surprising for those who have kept an eye on China for some time. In recent years, there has been evidence of data disappearing from across the nation – more than just the jobless figures. Data including goods exported and cement production has either vanished or become so skewed it is no longer reliable. This is not due to the economic fall-out; even in difficult times, many countries persist in revealing their reports. This notable issue stems from Xi’s government prioritising ideology over economic growth.
For decades, the Chinese Communist Party put its primary focus on developing the economy and transforming Chinese consumers into a major source of global demand. To do this, they implemented significant changes to how China was run – opening it up more and encouraging individuals to have more control over their lives. However, these efforts have been stalled due to Xi Jinping’s vision for China not matching the one these reforms were producing.
As Charlene Chu, managing director and senior analyst at Autonomous Research, told me, “I don’t even know if a private, domestic, demand-driven economy is possible in China due to the fact that it directly conflicts with the top-down manner in which the party typically manages the economy.” To do so, it would require a sea change in thinking.
Chinese Economy facing big setback
Despite the fact that China’s economy is facing a big setback, there will be no action to assist citizens with this delicate time. President Xi Jinping has asked the country to gear up for a “struggle” and place political interests above economic ones in the near future. These developments are unfavorable for multinational corporations that were assuming high returns in a prosperous and open Chinese market. Furthermore, investors looking forward to the revival of prior levels of growth before COVID-19 can expect their hopes to be dashed. The economy has been flagging for a while now but due to the current pressure, this problem cannot be overlooked anymore.
Despite China’s economic pain, foreign investor concerns, and crumbling demographics, it’s clear that Xi will not budge on his vision for the sake of the country. He would rather keep the world at bay.
Chinese Economy Data
China’s economic data have always moved in the same cycles as its politics. The real-estate sector is one of the most worrying examples of this growing secrecy. Now that Xi and the CCP are openly embracing some of the hardline practices of the past, data is disappearing in kind. China’s property market contributes about 30% of its GDP, making it the cornerstone of the economy. The sector has also been losing key data for some time.
During a recent report for clients, Chu explained that the National Bureau of Statistics stopped disclosing data on land sales by area after December and consumer confidence after March. In March, the agency changed how it calculated property sales and investment growth. According to Chu and Zhang, the changes caused eyebrow-raising gaps between official numbers and estimates based on secondary indicators.
Despite the fact that exports account for 18% to 24% of China’s GDP, Chu wrote that Chinese Custom Bureau data has diverged noticeably from import data from its trading partners, not just real estate. Based on the discrepancy, it’s becoming clear that China is overstating the amount of stuff it ships abroad. According to Chu, she now uses a blend of the two datasets, and based on that average, China’s exports in 2023 will fall by 8%.
At China Beige Book, a private surveyor of the Chinese economy, analysts commented that official data concerning businesses’ capital is “now border on useless” as a result of continuous modifications implemented by the government. J Capital Research, a China-focused investment firm, affirmed in recent correspondence with their clients that significant indicators for investment, including cement, glass and tile production have diminished completely – figures used to measure the enlargement and development of China’s construction and industrial sectors. Sadly these are no longer accessible.
It may help manage confidence issues domestically, but it can undermine it with foreign investors,” Chu wrote. “This approach isn’t without cost, particularly with foreign investors and multinational corporations also lacking confidence.”
In recent weeks, foreign investors have been selling Chinese domestic stocks and bonds at a rapid rate. These same investors have been jittery before, but they have returned with dollars in their fists ready to pounce on the next boom. Unlike the past, this time, there is no way to predict when the next wave will hit — so there is no point in getting back in the water at all without accurate data.
Chinese economy to bounce back gloriously from COVID
As Wall Street panicked over an all-out economic collapse in the past few months, it went from expecting China to bounce back gloriously from COVID to panicking about an all-out economic collapse in the next few months. In response to those calling for catastrophe, Xi should do what Western governments did during the pandemic: send checks to Chinese households to boost consumption. Despite the calls from leading Chinese economists, it is unlikely to happen.
There is a political element to this. Xi’s unwillingness to distribute stimulus checks to households indicates his government’s aversion to releasing control. In his view, average people shouldn’t be in charge of the economy that much. A recent essay in the Study Times, an educational journal explaining Communist Party thought, argued that giving direct aid to families would not only be expensive, but would also lead to misallocation of investment.
Distributing 1000 yuan to each person would create a fiscal burden of around 1.4 trillion yuan, and it may not be enough to fully stimulate spending. The pandemic has caused many people to become more cautious with their expenditure, meaning the valuable fiscal resources may not be used as efficiently as hoped for.
For many years, the Communist Party has sought to attain high-income status. This is why China joined the World Trade Organization in 2001 and welcomed further foreign investment in the 2000s. Following the global recession of 2009, the CCP boosted its debt-to-GDP ratio up to almost 280%. Every time there are signs of economic decline, the government rapidly introduces credit into circulation. This largely benefits state-owned enterprises and follows a model that has led to capital mismanagement and persistent nonperforming debt. Professor Victor Shih of University of California San Diego’s 21st Century China Center believes it will take 10 to 20% of China’s GDP just to reignite sufficient levels of consumption to lift China from recession.
In contrast, consumer empowerment is practiced in open economies, where individuals, households, and private businesses control capital. The handout of helicopter money can be seen as one version of power for the people if money is power. Xi believes power belongs to the state. While stimulus might be the most effective way to advance China’s economy, the CCP is making it clear that maintaining its power is more important.
It’s hard to miss the shift from an economy-focused government to one that is more power and security-oriented. Crackdowns on private businesses, high-profile billionaires vanishing without a trace, and Beijing’s anti-espionage law create a climate of greater caution. In the past year, not only have foreign consulting firms been raided by authorities but the Ministry of State Security — once quite covert — now has a presence on WeChat asking citizens to report any behavior deemed anti-party. This means that foreigners operating in China might find themselves unknowingly breaking laws with disastrous consequences.
China to keep secret about economy
The Chinese Communist Party may think it is reclaiming power and mitigating social instability by keeping everyone in the dark about the economy. But what it’s really doing is showing its hand. Beijing’s actions indicate that the Chinese Communist Party’s priorities have shifted from economic development to maintaining a closed society where it is absolutely dominant, regardless of state mouthpieces’ lip service to openness and reform.
The authorities fear any sign of instability, Shih said. “They believe the financial system is so fragile that any shock might cause a crisis.”
Policymakers are often fearful of undertaking any large-scale reform, so they attempt to tackle economic issues one by one. As a result, troubles in crucial sectors such as real estate remain unchecked and this consequently leads to greater debt woes and a highly unstable environment. Trying to ascertain the future of the Chinese economy is difficult given scanty data, but nevertheless there is an overarching roadmap that has been outlined by the Communist Party of China and it is hampered by debt. The more opaque the economic climate becomes, strikingly Xi Jinping appears unconcerned.
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