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Category: Soap Box

Soapbox: China’s slowing economy

History moves, but the trouble is, it moves in circles. We seem condemned to an endless repetition of previous events that change only slightly, as in...

21 October 2021

Gary Mead

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History moves, but the trouble is, it moves in circles. We seem condemned to an endless repetition of previous events that change only slightly, as in a kaleidoscope. In the 19th century the aristocratic Prussian diplomat Klemens Wenzel Furst von Metternich said “when France sneezes, the whole of Europe catches a cold”.

If Metternich were alive today he might re-word this to “when China sneezes, the whole world catches a cold”. China has just sneezed: its gross domestic product (GDP) slumped to 4.9%, compared to the second quarter’s 7.9% growth.

But overall it grew by almost 10% in the first three quarters of 2021 year-on-year. That’s around 4% higher than Beijing’s target for full-year growth.

So it’s doing well, right? Well, maybe. Is the glass half-full or half-empty? The answer to that question matters to all of us. China accounts for almost a third of global manufactured goods, 10% more than the US. That we have lived through what some call the Great Moderation of price stability between the 1980s and 2007 and its deflation is largely thanks to the cheapness of Chinese labour.

 

Xi Jinping acts

China’s President Xi is widely seen as authoritarian. But his recent crackdown on some of the more ‘wild west’ parts of China’s economy has taken even his most severe critics by surprise. It’s almost as if President Xi could not care less about what the world thinks of him.

The Chinese Communist Party has, since last October, been engaged in a fistfight against many businesses and wealthy individuals. This fight dates from a year ago, when Jack Ma, the founder of Alibaba Group Holding, criticised China’s financial regulators for having what he said was a “pawnshop mentality”. Ma was swiftly smacked into line; the $30-$40 billion initial public offering of Alibaba’s fintech arm, Ant Group, was cancelled and Ma abjectly apologised, offering the state any part of the company it liked. Ma has since become a ‘non-person’.

In July this year, an “investigation” into the ride-hailing firm Didi Chuxing was announced, which is now said to be based on national security concerns. In August, restrictions were imposed on underage gaming, and a Chinese actress was blacklisted; in September, private tutoring was banned; high-tech companies have been reined-in. China has brutally repressed free speech in Hong Kong; it has chased Bitcoin mining out of China; lists that rank celebrities have been banned. All parts of China’s economy and culture are being brought under tighter state control; in May this year China banned the filming or sharing of “mukbang” (binge-eating) videos.

None of these measures by themselves make much difference to economic growth. Cumulatively however they are slowing China’s economy, which between 1989-2021 showed explosive growth averaging 9.27% a year. Why would President Xi want to slow things down?

Xi Jinping speaks

President Xi made an important speech at the 10th meeting of the Central Financial and Economic Affairs Commission on 17 August, which has only just been translated and published by the CCP’s flagship journal, Qiushi, under the (split-infinitive regardless) title To Firmly Drive Common Prosperity. In a country where little or nothing gets published or remains in the public domain without official sanction, it is remarkable that an essay by an ultra-nationalist blogger, Li Guangman, swiftly followed President Xi’s speech. Li gave as the title of his essay Everyone Can Sense That a Profound Transformation is Underway! It was quickly picked up and re-published by prominent state media such as Xinhua.

Li wrote in part: “The U.S. is waging biological warfare, cyber warfare, space warfare and public opinion battles against China… If we rely on the barons of capitalism to battle the forces of imperialism and hegemony, if we continue our obeisance to American “tittytainment” tactics, if we allow this generation of young people to lose their mettle and masculinity, then who needs an enemy – we will have brought destruction upon ourselves, much like the Soviet Union back in the day, when it allowed the nation to disintegrate, its wealth to be looted, and its population to sink into calamity. The profound transformations now taking place in China are a direct response to an increasingly fraught and complex international landscape, and a direct response to the savage and violent attacks that the US has already begun to launch against China”.

Li’s essay evoked a hostile response from Hu Xijin, the political heavyweight editor-in-chief of the state-owned tabloid Global Times, which ridiculed Li’s suggestion that an impending revolution was imminent.

This spat is interesting not in itself but for what it reveals about the thinking of the upper echelons of the CCP. Commentators in China have taken to making comparisons between the rise of privately-owned tech giants and the kind of ‘robber-baron’ capitalism that gripped the US at the end of the 19th century. Some are suggesting that President Xi is intent on the kind of cultural revolution that Mao Zedong disastrously supervised from 1966 until he dies in 1976; others are more sanguine. The former head of the World Bank in China, Bert Hofman, has said: “This is not the end of the socialist market economy, but China has decided to make the market a bit more socialist”. So China’s economy is not grinding to a halt, just slowing.

Everything changes but stays the same

Chinese people want to become wealthier, to have a better material life. Its leaders want the same but with guaranteed political stability – which in their case means no challenges to their control. History is replete with examples of how control can slip away – the post-perestroika collapse of the USSR is for them just one example of the danger of uncontrolled political reform. Loosen the straps just a little and chaos can break out. The aim of the CCP, of President Xi, is that everything changes – that China’s foray into unbridled capitalism is forced into take a socialist turn – but it all stays the same, that economic growth will continue and the people grow wealthier. This might be easier said than done.

Tensions at the top of the CCP are nothing new and we will only discover how deeply the current ones are many years from now. There are some certainties however, perhaps the most important being that China will push out its own Central Bank Digital Currency (CBDC) at the Winter Olympics in Beijing 2022. This grand experiment in money is opposed by some as being invasive of personal data, and attacked by others as a step towards dislodging the US Dollar from its position as the international reserve currency. The Chinese e-yuan is like a vortex, sucking all central banks and their governments into the creation of digital currencies. Even if China’s economy slows further, Beijing will do its utmost to consolidate its e-yuan’s dominance as the ‘first mover’ in this space. Sooner or later, fiat money will everywhere be displaced by digital wallets, digital accounts, and digital money. Everything will change but all will stay the same.

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