President Xi gives China’s citizens the cold shoulder

Whatever happened to the people in the People’s Republic of China? For President Xi Jinping and his latest five-year plan, they appear to be collateral damage in the revolutionary rush to develop high-tech industries and scientific breakthroughs. 

Off-the-scale spending has already powered the world’s second-largest economy into an “export powerhouse.” The result has been massive “overcapacity,” a cratering of domestic “demand,” falling producer “prices,” and anemic profits.

In short, China’s US$19 trillion economy remains shaky, shrouded in a prolonged property slump, rising unemployment, and local governments creaking under mountains of debt. Deflation is rampant, with even the “middle-class struggling” to make ends meet. 

“[Despite] public statements, the reality is that China’s people increasingly find themselves left out in the cold when it comes to Beijing’s spending priorities,” Jeremy Mark, an academic at the Atlantic Council’s GeoEconomics Center,” said.

“[The five-year plan] continues to give pride of place to Xi’s emphasis on industrial development – and not to the kinds of reforms that might improve the lives of China’s citizens in the near future,” he wrote in a commentary on Friday for the Atlantic Council.  

Behind the news:

• Last week, Xi chaired the Central Committee of the Chinese Communist Party in Beijing behind closed doors to thrash out the fourth plenum of the 15th Five-Year Plan. 
• The highly secretive discussions outlined China’s broad economic, political, social, and military goals into the next decade.

Social welfare and employment seemed more like an afterthought.

Katja Drinhausen, Mercator Institute for China Studies

Delve deeper: Top of the agenda was the obsessive focus on a new wave of “technological self-reliance and self-strengthening.” Emerging and future industries, such as clean energy or AI, received top billing, as well as hot-wiring traditional manufacturers. 

Between the lines: “Beijing talks about creating virtuous circles between improving people’s livelihoods and promoting consumption,” Katja Drinhausen, of the Mercator Institute for China Studies, wrote in an analysis for MERICS.

Bottom line: “But the whole mantra of ‘new demand will lead new supply, and new supply will create new demand’ rings a bit hollow, considering that social welfare and employment seemed more like an afterthought in the initial communique,” she said.

Big picture: At the same time, “trillions in hidden debt” has funded China’s breakneck growth. “Now it threatens its future,” The Wall Street Journal reported, adding: “Local governments [have] racked up as much as $11 trillion in off-the-books debt.”

China Factor comment: A new drive to dominate technologies of the future will only fuel excessive capacity at home amid dwindling domestic demand and a flood of exports abroad. This is not a five-year plan, but a blueprint for future trade wars and spiraling debt.