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Reviews | Xi Jinping is damaging the Chinese economy. It's bad for the United States

Reviews |  Xi Jinping is damaging the Chinese economy.  It's bad for the United States


Over the past decade, Americans have grown increasingly concerned about China, particularly as Chinese President Xi Jinping has centralized power, silenced critics, blocked private sector reforms, and adopted a increasingly combative posture towards the rest of the world. China is poised to overtake the United States as the world's largest economic power by 2035, Xi predicted; China would then regain its rightful place at the center of world affairs.

On the contrary, Mr Xi's China is less free, less prosperous and less competently governed than it would have been if he had followed a different path, one not inspired by rivalry with the West or by fear of his own people. Economic and demographic data show that a world dominated by China is even less likely than ever. Economists have begun to revise their predictions about when China could overtake the United States economically and whether it ever will.

Although Mr Xi lifted the world's most draconian Covid-19 restrictions at the end of 2022, construction in China has slowed, prices of manufactured goods have fallen and consumer spending has stabilized. The Chinese stock market has lost $6 trillion in value in three years. A dozen cities and provinces were asked to stop the construction of infrastructure projects reducing their main source of income.

The biggest economic threat comes from the slowdown the real estate market. Construction has slowed and more than 50 major real estate developers are either cash-strapped or defaulting on payments. Fears abound that bankruptcies will leave millions of housing projects unfinished. Buyers who have paid in advance fear their money will be lost.

Demographics of China also poses a significant challenge. China had 500,000 fewer babies in 2023 than the previous year and recorded 11.1 million deaths last year. The overall population fell by 2 million, and the decline expected to continue. China has one of the fastest growing elderly populations in the world, with a shrinking workforce. Many Western countries and Japan are also aging. But the problem is occurring more quickly in China, and at a much earlier stage in its development, the country is getting old before it gets rich.

China recorded a respectable 5.2 percent economic growth rate last year, but the real rate is lower when adjusted for falling prices. Rather than being an economic juggernaut, China appears to be entering a period of deflation, the kind of conditions that led Japan to lost decade.

Faced with these challenges, China leadership seems paralyzed. The country's economic decision-makers were once highly respected. But Mr. Xi's centralized regime appears to have blocked decision-making.

China has tools to use. A stabilization fund could help shore up lagging equity markets (an idea floated, then abandoned). The government could take back unfinished properties to ensure their completion and guarantee advance payments from potential buyers. They could announce new measures to restructure the debt of local authorities. To support consumer spending, they could launch a stimulus program aimed at transmitting more money directly to citizens.

To cope with its aging population, China could also expand its meager social safety net for the elderly, including now insufficient pensions, and increase health insurance. This could help the economy now; people save rather than spend due to lack of government support. China should also rethink the official retirement age, now set at 60 for men and even lower (and unfair) at 55 for women.

But Mr. Xi refuses. He rejects a recovery program consisting of transferring money to populations, calling it social assistance. A staunch communist, he has an aversion to the private sector and channels government support preferentially toward inefficient state-owned enterprises. Security concerns and ideological purity trump economic growth. To curb the decline in the birth rate, he prefers to urge young women to stay at home and have more children, as their patriotic duty. He seems to prefer surrounding himself with yes-men and communist loyalists rather than savvy economic technocrats who understand markets.

Some Americans might feel relieved by China's difficulties; the country will be less able to finance its military build-up, wage a trade war or capture important global markets. That would be shortsighted.

Instead, the United States and the world should hope that China's leaders radically change course. China remains a largest trading partner of the United States (alongside Canada and Mexico). THE American agricultural sector is particularly dependent on a strong Chinese market, particularly for soybeans, corn and, increasingly, beef. Many trade-dependent U.S. allies, particularly in Asia, also need Chinese consumers.

But the necessary change of course would require Mr. Xi and the Chinese Communist Party to acknowledge that they have failed in their efforts to prove that bellicose authoritarianism and long-term prosperity are compatible. Viewing Western countries as adversaries, they view liberalism as chaotic and threatening. Indeed, they find that, to paraphrase Winston Churchill, it is the worst option, except for all the others.




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