Economic meltdown haunts China’s Party comrades

An economic meltdown is threatening the Communist Party of China’s right to rule.

Bungled Covid-19 policies, banking scandals and a property crisis have shattered the myth of competency and stability.

Behind the serene scenes, President Xi Jinping’s government is in turmoil, tarnished by a flatlining economy and an angry middle-class.

Already there are growing concerns that the China Century is over before it has really “begun.” 

“What if the new era of great-power competition was over before it had even begun,” Craig Singleton at the Foundation for Defense of Democracies asked.

“Many of today’s fears about a multi-generation conflict with Beijing rest on linear extrapolations of yesteryear’s data, harkening back to a time when China appeared on track to supplant the United States as the world’s largest economy,” he wrote in a commentary for Foreign Policy.

“Yet more and more signs point to a China that is fully unprepared for the competition with the United States it once sought,” Singleton said.

Stat attack:

• Official data released last week showed the economy shrunk 2.6% in the second quarter from the first three months.
• Flash lockdowns in major cities such as Shanghai, weak consumer spending and turmoil in the property sector stalled economic activity.
• Overall, GDP growth was just 0.4% in the second quarter compared to the same period last year, the National Bureau of Statistics reported.
• As for urban unemployment among the 16 to 24 age group, it hit a record 19.3%.
• In simple terms, that means nearly one in five young people are now out of work.
• Foreign direct investment has also taken a hit this year amid President Xi’s “zero-Covid policy.”
• Even China’s trade figures in June failed to lift the gloom. 
• Booming exports after lockdown logjams failed to hide weak domestic demand. 
• Outbound shipments jumped 17.9% last month, the fastest rise since January. 
• But June imports posted an anemic 1% increase from a year earlier.

Per Capita Consumption Expenditure | First Half 2022

Between the lines: “New government trade data confirm that exports continue to keep #China afloat & domestic consumption continues to be mind-numbingly weak. So let’s be done [with] all the China weakness foreshadows developed world pain commentaries. China is dependent on [the world] for growth, not [the] other way around,” China Beige Book, the research consultancy, tweeted last week.

Delve deeper: Beijing is reported to be planning a US$1.1 trillion stimulus package, aimed at new infrastructure projects. It comes at a time when debt in the banking and property sectors, as well as local government, is spiraling out of control.

Warning signs: “The chances of a financial meltdown are much higher today than before,” Minxin Pei, of the Claremont McKenna College and the German Marshall Fund of the United States, said at the weekend.

Financial crisis: “One of the reasons that China has avoided a financial crisis in the last decade is that its economy managed to grow at a reasonably high rate, [making] it easier to manage or even conceal the debt burden,” Pei wrote in a commentary for Nikkei Asia.

Tick tock: “But as the Chinese economy is now slowing down rapidly, the debt bomb is ticking much louder,” Pei pointed out.

Freefall fallout: “China’s economy, long in decline, is now in freefall – thanks to Chinese leader Xi Jinping’s mismanagement. In an attempt to stabilize [the country’s] finances, [he has] doubled down on the very economic policies that got China into today’s economic bind in the first place,” Singleton at the Foundation for Defense of Democracies said.

China Factor comment: Even General Secretary Xi and the rest of the ruling Communist Party cadres cannot defy economic gravity. Parachute anyone?