Forums » News and Announcements
As China's economy teeters under COVID-19
-
As China's economy teeters under COVID-19
Talk about timing. By this time next week, China's President Xi Jinping will be well on the way to securing a stunning personal victory.To get more latest news in china economy, you can visit shine news official website.
After a decade of leading the world's second-largest economy, lifting China's global influence and positioning the country as a military superpower, Xi next week will cement his own destiny by securing a historic third term as general secretary of the Communist Party and head of the military.
For all intents and purposes, he will become China's permanent ruler.
It has been a close call. The deft political footwork required to jettison a four-decade rule that limited power to two terms has been steadily unravelling. The country's economy is teetering under funding shortfalls and mounting debts, a shambolic response to COVID-19 and a residential property sector threatening to implode.
When it comes to our future, and that of our region, nothing matters more than China.Once the economic miracle whose growth helped propel Australia through the Global Financial Crisis, China now is facing serious economic problems.
Just as Japan entered a decades-long stagnation in the 1990s, China's growth, fuelled by huge government spending, is stalling as it enters what is known as the "Middle Income Trap".
That would be concern enough, given it is our biggest trading partner by a country mile. But add in Xi's determination to install himself as supreme ruler, and his strategy of shoring up domestic support with an aggressive military stance abroad and the situation becomes extremely worrisome.
Turning back the clock
In 1982, Deng Xiaoping imposed the two-term rule in a bid to forever avoid a repeat of the social and economic disaster presided over by Mao Zedong.It was a policy that paved the way for China's industrialisation, growing sophistication and its ascension into the economic superpower club after decades of famine and oppression under a brutal dictatorship.
If Xi's rule is so far notable for anything, it is for his focus on his own position rather than on rectifying the myriad of deep-seated macroeconomic problems threatening to undermine the country's future.Cementing his own power base, regardless of the cost, has become a hallmark of his leadership. From political rivals who were quickly dispensed with early on under corruption crackdowns, Xi in more recent times has turned his attention to the country's homegrown billionaires.
Jack Ma, the founder of Alibaba, may have been the highest-profile victim of the purge. But it extended to the hierarchy behind many of China's most successful tech companies including Tencent and Didi. Before long, authorities had trained their sights on education companies, to the dismay of western investors.
Not long afterwards, at least 73 firms announced they would contribute to Xi's "common prosperity fund", a term that harks back to the days of Mao.
What is wrong with China's economy?
Where to start?In the short term, Xi's insistence on eliminating COVID-19 has been a disaster. Huge parts of the country's manufacturing base and its distribution networks have been shut for extended periods at enormous cost, making China the only country to continue stringent lockdowns.
There is a reason for that. Its vaccine rollout, particularly for the elderly, was haphazard and slow. In addition, its homegrown vaccines have been next to useless against more recent COVID variants and its hospital system is inadequate.
That's taken a toll with growth slowing, potentially slipping into reverse, which will weigh on a global economy foundering under the weight of interest-rate hikes.The first is that household income is painfully low and savings are way too high. That means household spending – the engine for most developed economies – just doesn't cut it. To compensate, economic growth has been driven by Beijing spending huge amounts of borrowed money on investment.
True, the country has incredible infrastructure with high-speed rail, massive highways and modern cities. But maintaining that momentum involves pouring ever more cash into ever more marginal projects that don't deliver quite as much. Eventually, you end up with roads and bridges to nowhere and cities with no residents. And a mountain of debt.
Longer term, China has an even more serious demographic problem.
Its working-age population peaked in 2014 and, depending on which study you read, its population will start shrinking as early as next year. According to the Centre of Strategic and International Studies, that will knock between 2 and 3 per cent from its growth rate by 2030.