China’s Economic Puzzle Under Xi Jinping – Analysis – Eurasia Review

By Seong-hyon Lee

China's difficult economic situation is rooted in a struggling real estate sector and a strategy based on a shift toward high-tech industries. President Xi Jinping's prioritization of national security and his skepticism of market forces are exacerbating the problem and leading to tensions between political will and economic imperatives.

China's struggling real estate sector once accounted for an impressive share 30 percent of the national GDP. This is peak in 2018 has given way to a sharp slowdown which, further aggravated by the COVID-19 pandemic, is now operating at around half of its former capacity. This decline has left a significant mark on the Chinese economic fabric, with real estate sales 20.5 percent drop during the first two months of 2024.

Historically, real estate was not only a financial driver, but also a catalyst for ancillary sectors, generating employment in the construction sector, driving the development of retail trade and boosting the banking sector through loans. This relationship has fostered a dynamic cycle of economic expansion.

But as China moves toward a middle-class society, Xi Jinping's administration is moving away from this growth model. Three red lines The policy aimed at mitigating the significant risks faced by many property developers with mounting debt has proven less than encouraging and led to a reduction in residential investment. The policy signals Xi Jinping's pivot to more technologically advanced industries, like AIbig data, bioengineering, semiconductors and quantum computing.

The move is part of a broader agenda to reposition China's economy toward high-tech industries, mirroring global economic trends that favor scientific innovation and smart technologies. More importantly, it aims to secure a victory in the Sino-US rivalry.

XI priority given to national security Excess economic flexibility complicates this transition. His deep skepticism of market forces, shaped by experience corruption and ideological deviations under the administration of former President Hu Jintao, continues to influence economic policy. His cautious approach has prompted increased scrutiny and limitations of big tech companiesreflecting a strategy of economic policy which favors firm state control over market-driven growth.

Governments preference for strengthening public enterprises Xi Jinping's political attitude is to take measures to the detriment of the private sector, which has been a cradle of innovation and economic vitality. But bureaucratic state-owned enterprises cannot achieve the same successes as a thriving entrepreneurial sector when it comes to innovating cutting-edge technologies. Xi Jinping's approach dampens entrepreneurship and limits the private sector's ability to innovate and compete globally. We are already seeing a notable change in the professional aspirations of young people, who are no longer entrepreneurs. gravitate towards government jobs seeking stability rather than pursuing entrepreneurship.

Despite GDP growth of 5.3% In the first quarter of 2024, the International Monetary Fund suggests that China's economic rebound could take several years and become a slowdown in the medium term. THE once-robust manufacturing sector Even if signs of recovery fail to fully offset the considerable slowdown in real estate, China excels in the production of solar panels, wind power and electric vehicles. But its success is attracting unwanted attention from Western competition policy analysts and prompting import restrictions. As a result, China risks developing manufacturing bottlenecks.

Meanwhile, consumer confidence stay discreet. Retail sales growth slowed to 2.3 percentIn April 2024, household consumption recorded a decrease of 3.1% compared to March, year-on-year. This deceleration in consumer spending highlights the economic uncertainties and lingering negative effects on wealth stemming from the slowdown in the housing market.

The government faces a dilemma: it must revive growth without returning to outdated methods that will not solve the country’s current problems. Yet Xi Jinping is so determined to maintain political control that he is stifling entrepreneurship. The challenge, then, is not just to support Xi Jinping’s new economic prescription. new productive forces independent of the real estate sector, but also to implement it quickly enough to produce results. This is crucial to ensure a V-shaped recovery and avoid a recession.

This scenario constitutes an important test for Xi's ideological framework, which advocates a Marxist-socialist model rather than Western capitalist paradigms. Xi's efforts toward common prosperity aim to ease income inequality worsened by decades of disparate economic growth. Former Chinese leader Deng Xiaoping allowed this disparity to optimize economic reform and opening-up. Xi's emphasis on income equality and regional fairness marks a crucial return to state-led initiatives.

Some analysts of China And United States Some believe that China's economic situation is not as dire as is sometimes suggested. But if the Chinese government has announced several measures to stabilize the real estate sector in May 2024, the lack of precedents for the Chinese position raises doubts about its feasibility within the framework of current political strategies. For Xi Jinping, implementing these policies will require a balance of political strength and historically rare economic acumen.

The interweaving of governance, ideology, and market dynamics under Xi Jinping creates a landscape in which political decisions profoundly influence economic outcomes. The challenge is to implement a balanced strategy that promotes economic vitality while respecting ideological commitments.

China, renowned for its economic resilience, is facing an increasingly narrow window of opportunity to recover from its severe economic setbacks. China must regain its momentum before it misses the opportunity to revive its economy.

• About the Author: Dr. Seong-Hyon Lee is a Visiting Fellow at the Asia Center at Harvard University and a Senior Fellow at the George H. W. Bush Foundation for U.S.-China Relations.
• Source: This article was published by the East Asia Forum