State money covers up China’s economic calamity

Juicing up China’s economy with state money has failed to hide a productivity slump and shrinking growth. Instead of solving sky-high unemployment among Gen Z or Zoomers, Beijing has rolled out sky-high subsidies to prop up the country’s economic numbers.

By using “self-deception,” the ruling Communist Party mandarins are able to artificially hide the stench of stagnation. As China Factor reported earlier this month, deflation is running rampant amid anemic domestic demand. 

Dwindling consumer spending, evaporating household wealth, falling wages and the property crisis have set in motion a manufacturing ‘doom loop.’ At the same time, college graduates are struggling to find full-time employment, highlighting suspect jobless numbers.

“China appears more productive than ever before. But behind the glossy figures lies a different picture – the state is financing efficiency that would hardly exist without it,” China Business Spotlight reported last week.

“Beijing spends around 5% of its GDP annually on industrial and technology subsidies. That corresponds to approximately US$900 billion. The largest sums go to the steel sector, battery production, and automobile manufacturing,” the Substack site stated.

Nearly one billion people could be stuck in low-income livelihoods.

Foreign Policy

Playing the numbers:

• Last week, the National Bureau of Statistics revealed that factory output and retail sales suffered snail-like growth. The figures were the weakest in more than a year.
• The data also underlined the twin economic challenges of low domestic demand and trade-war strains. They still exist despite talks between Beijing and Washington.

Delve deeper: Yet one of the key problems facing President Xi Jinping’s regime is that the Party’s “obsession with tech,” and a decade of “cutting-edge investment, has not translated into growth.” An essay in Foreign Policy spelled that out last month.

Between the lines: “China’s continued tech ascent seems unstoppable. Yet equally persuasive are signs of structural weaknesses,” Scott Kennedy, at the Center for Strategic and International Studies, and Scott Rozelle, at the Stanford Center on China’s Economy, said. 

Big picture: “Some say [the economy] has peaked [and is now on] an inescapable downward growth spiral,” they wrote, spotlighting an aging population, a “collapsed real estate market,” and rising unemployment among Zoomers.

Bottom line: “If this trajectory continues, China will find it impossible to escape the middle-income trap. If [the] economy slows down or stagnates, nearly one billion people could be stuck in low-income livelihoods,” Kennedy and Rozelle pointed out.

China Factor comment: Even though the lights are flashing red, Xi appears to be oblivious to the dangers just around the next corner.