China's Political System Faces A Challenge It May Have Forgotten About—Faltering Economic Growth

An Indian trader recently sent an import enquiry to his contacts in China. The Chinese were known for their aggressive follow-ups. However, this time it was different. Not only the response was lukewarm but there seemed to be a loss of appetite. “This is a new China,” the Indian remarked.

The apparent reasons are widely known. After centralising power for the last 10 years, Chinese President Xi Jinping now wants to be the ‘leader for life’, like Mao Zedong. He will seek re-election at the twentieth party congress (held once in five years) in November 2022.

At this moment, the re-election looks certain and, Jinping doesn’t want that damn virus to spoil his dreams. So, he locked up the Chinese in the name of the Zero-Covid policy. As in the last week, most of the prominent Chinese ports in the South were barely operating.

In a way, this covers the entire range of issues pertaining to the latest trends in China. But the devil lies in the details that indicate China is indeed shifting course.

Four decades since Deng Xiaoping’s “reform and opening”, Jinping is back-pedalling China to isolation. His “New Development Concept” wants to reduce dependence on global trade and investment flows. This is to deny the world any opportunity to influence its policies.

How it will augur on China and, more importantly, the rest of the world, is unknown at this juncture. While the bigger picture will be clear after 2022; a tectonic shift in the global economy and geopolitics is foretold.

There is little doubt that Jinping’s ultimate aim is to rival the US. As an immediate neighbour and the only rival power in this part of the world, India has reasons to keep a close eye on the developments and act accordingly.

A political animal

The last decade made it clear that it was politics that drove economics not the other way round (as advocates of globalisation made us believe) and, in so far as China was concerned, it was a highly political animal since birth.

Deng brought some aberrations to this image. He might have had a better dream for China. But the truth remains that for the majority of the 40 years of China’s reforms since 1978, the world basically played in its hands.

The once belligerent Western media became quiet in no time. Tiananmen coincided with the fall of the Berlin Wall and the dream run of investment capital. This, coupled with the obsession to pull down Russia, made the West project a goody-goody image of China while lambasting India for not getting its acts together.

Beijing used it to its advantage. The 2008 Tibetan uprising that coincided with the Beijing Olympics was suppressed without much ado. By the time the western world became aware of the Chinese intentions, in the last decade, Xi showed them their place.

Multinationals are asked to keep silent about the situations in Xinjiang and the Taiwan Strait “or risk being pushed out of the market,” writes Dexter Tiff Roberts, former China bureau chief of Bloomberg Businessweek.

The country’s successful private companies are forced to allow Chinese Communist Party (CCP) committees into their management and “bend to Beijing’s diktats”. More than 90 per cent of China’s top 500 private companies have a party presence.

Economy in doldrums

Beijing was never comfortable with the free market propositions. But they accepted it for the sake of capital. Now powerful and amassed huge resources, Xi is throwing that cover to the wind.

Some of it might have been necessary too. Beijing in the past created a real-estate bubble. The sector contributes 29 per cent of China’s GDP and has an outstanding debt of $5 trillion (almost double the size of India’s GDP). They are now a source of major concern to the economy.

While the global media reports centred around Evergrande; several top property players like Sunshine 100, China Aoyuan, Shimao, and Chinese Estate Holdings reported defaults in loan repayments, around the same time.

The decline of the property sector threatens to dry up the revenue source for local governments which thrived on land sales. Beijing wants to deleverage the sector. But can they? Kevin Rudd, former Prime Minister of Australia and now President and CEO of the Asia Society, has doubts.

There are reasons behind this scepticism. After 40 years of sustained growth, China’s private sector is witnessing a pushback. The backlash was not limited to Jack Ma and his Ant Group. Xi has put a leash on the entire tech sector. His “common prosperity” campaign sent shivers down the spine of China’s millionaires and billionaires.

The State is now keen to get back in the driving seat. The huge state-owned banks and financial institutions, that make it to the Fortune 500, are opening their war chest to the State-owned companies, to take the driving seat. Their shadow is getting longer on the economy.

Gone are the days when Jack Ma was rivalling Jeff Bezos in inspiring the budding entrepreneurs of the world. He and his ilk are now simply expected to wag their tails at the whistle of the State. The big question is: Will they still remain as bullish on China?

The answer will be known with time. But right now, the Chinese economy is on a downhill journey. The GDP growth rate is falling for the last couple of quarters, retail sales are declining, small businesses are shutting shops (4.37 million closed in 2021) and unemployment is rising.

Covid has hurt the employment scenario worldwide. In India, the hirings are rising at a rapid pace in the organised sector. The overall unemployment is declining but is still higher than average.

However, for a country that denied people political rights in exchange for economic prosperity, unemployment is a bigger issue than in India.

Li Keqiang — the No. 2 in the hierarchy of CCP — called the employment situation "complex and grave", reports CNN Business. In a recent statement, he instructed all levels of government to prioritise measures to boost jobs and maintain stability.

Stability is the new buzzword in China. Rudd says it’s a ‘political code’ to generate 6 per cent growth. “Tellingly, even the Chinese Academy of Social Sciences now expects annual economic growth to slow to 5.3 per cent in 2022, down from 8 per cent in 2021,” he added.

Uncomfortable proposition

The CCP is not comfortable with these numbers. There are rumblings within the party that they might have gone too far. An initiative is taken to woo the private sector recently. Party publications have also carried some articles by senior leaders regretting the shift from Deng’s policies.

But right at this moment, President Jinping appears to be all set to gain more control in a single-party ruled economy. The question is: what would he do with that power. Mao’s rule saw serious damage within. Millions died in famine while the CCP kept reporting false numbers on food production.

Things have changed a lot since then. The new China is more powerful and expansionist. On top of all, it has joined hands with Russia. Together these two are potent to create a lot of trouble for others.

Also Read: Touchy Regimes And Religious Instincts: China’s Crack Down On Renowned Economists Who Question Zero-COVID