Economic crisis gives Beijing a birthday bash hangover

President Xi Jinping appears to have parked China’s economy into a cul-de-sac ahead of the Party’s birthday bash.

It comes at a tumultuous time amid trade wars, regional flashpoints in the South and East China Seas, as well as domestic disillusionment and austerity fears.

Hardly the air of optimism Xi was counting on before Tuesday’s 75th anniversary of the People’s Republic of China and the one-party Communist state.

But then, he is to blame for the mess Beijing faces and the veil of secrecy covering the country, according to a Foreign Policy commentary entitled Xi Jinping is prioritizing political survival over economic prosperity.

“China’s economy is facing its gravest challenges since the Maoist era,” American lawmaker Raja Krishnamoorthi, of the US House Select Committee on the strategic competition with the Chinese Communist Party, wrote.

Background:

• The nation’s brightest and best are struggling to find jobs.
• Office workers have been hit by wage cuts and redundancies.
• Bankruptcies are climbing in the private sector.
• Property prices have tanked, squeezing consumer spending.

It is clear that Xi finally recognizes the severity of the crisis.

Dexter Roberts of the Atlantic Council’s Global China Hub

Delve deeper: In a move to “rebalance the economy,” mortgage rates for existing home loans were cut last week. It was part of a two trillion yuan, or US$285 billion, package to stimulate spending and slash ballooning local government debt.

Between the lines: “If Beijing doesn’t transform the growth model, the imbalances will continue to build,” Michael Pettis, a senior fellow at Carnegie China, said, as reported by the Reuters news agency.

Big picture: Xi’s government has relied on an unsustainable economic blueprint, flooding Europe and the United States with cheap high-tech exports, such as electric vehicles. In August, China’s trade surplus hit $91.02 billion. 

Will that change? Unlikely. “It is clear that Xi finally recognizes the severity of the crisis … [but] it doesn’t mean [he will] abandon his state-heavy, investment-led approach,” economist Dexter Roberts, of the Atlantic Council’s Global China Hub, wrote in his Trade War newsletter.

China Factor comment: The Communist Party is staring into the abyss of a Japanese-style “Lost Decades” of stagnation. It will take more than nearly $300 billion of window dressing to avert the impending catastrophe. But not the party.