China, the country that dazzled everyone before the pandemic, today raises doubts about its future. As the landscape clears, the country is preparing to flood the world with electric cars and other sophisticated manufacturing.
It has taken China 40 years to stop being an ancient economy to become the superpower that rivals the United States in technology and military power. Its dazzling rise since Deng Xiaoping liberalized the economy in 1979 is the closest thing to an immutable law of geopolitics, to the point of positioning China as the most plausible alternative to liberal democracy.
However, China no longer commands the enthusiastic assessments of just two years ago and is the subject of pessimistic forecasts, sometimes as exaggerated as the praise was before. A decade ago it was predicted that China would surpass the US in GDP in the 1930s. Today many doubt that this will ever happen.
What can you expect from China? Why the change in diagnosis? Explanations vary depending on where the emphasis is placed. These are the most common:
China is an authoritarian regime. And Xi Jinping, someone who thinks more about ideology than growth. The communist leader took advantage of the exceptional nature of the pandemic to end pro-market reforms and reintroduce centralization. He is suspicious of the private sector and wants more of the party's presence in the economy. If Deng did everything possible to ensure collegial leadership, Xi has reinforced the cult of personality. It is the vision of economist Adam Posen, author of “The End of the Chinese Economic Miracle,” an August 2023 Foreign Affairs article.
This shift can also be read from the left, which attributes it to pragmatism. Historian Branko Milanovic claims that the price of growing above 6% in the past has been increased inequality. Xi is suspicious of successful capitalists (Jack Ma, founder of Alibaba, was silenced and began to have problems when he began to give his opinion) and at the same time strengthens the public sector. Prefers to grow less in exchange for more stability.
Another historian, Adam Tooze, explains it. The “success” in the initial management of the pandemic convinced Xi of the superiority of his model. In that period (2021 and 2022) he outlines before the UN his vision of a world order in which China leads the global South and the approval of a third term is guaranteed. But in the spring of 2022 the first protests against confinements appear in Xinjiang and Shanghai. The zero covid policy - possible in a disciplined society in an authoritarian regime - becomes unsustainable and the Communist Party abandons it for fear of popular unrest.
Chinese success is made of steel and cement. 68% of China has been built since 2010; 88% since 1990. It is estimated that the real estate and infrastructure sector accounts for around 30% of the economy. One of the factors that limit the country's ability to return to robust growth is precisely the enormous debt accumulated by companies in the sector and local administrations.
Forced savers. How have the Chinese come to bury so much money in real estate? The person who explains it best is the economist Michael Pettis. Like other authoritarian societies, China has penalized consumption in favor of investment. The Chinese miracle was the result of directing most of the pie not to salaries but to companies to boost exports. But the great financial crisis of 2008 arrived. World demand sank. And the Chinese technocracy redirected all that investment to infrastructure and housing construction to sustain the country. China avoided recession. But it was trapped in so much cement with investments that have become unproductive.
In the last decade, Chinese leaders have discussed the opportunity to give more weight to consumption. But getting the Chinese to spend is not easy. It takes conviction (Xi would be a man anchored in the Maoist ideal of frugality). And families also have to be convinced. But the fear of unattended old age makes them very cautious. China has begun to age rapidly. Japan began to lose population in 2011. South Korea in 2020. China has had a population decline for two years (in 2023, two million less).
Even so, first industrial power. China is in a complex situation. And that affects the rest of the world. China is the industrial superpower of the planet. Its weight in global manufacturing is 35% (12% in the US, 6% in Japan, 4% in Germany) as published this week by economist Richard Baldwin. It took almost a century for the American industry to surpass the United Kingdom. China has done it in 20 years. In 1995 what sold the most was textiles. Now it's electronic. Decoupling from China (as politicians and economists in the West propose) seems sarcasm. China is today overwhelmingly hegemonic in the electric car and in the economy of the green transition.
Observers do not know whether Beijing will be able to maneuver the adjustment that is needed. Some fear that he will resolve it with military adventure. But it is more likely that he will do what he has already done before. That is, he floods the world with electric cars and sophisticated manufacturing. That alone will be a serious problem for a West that talks about reindustrializing.
China has announced that growth in 2023 has been 5.2%. It is a discreet figure by Chinese standards but many observers see it as exaggerated. This is the ultimate Chinese lesson: statistics, like politics, are inscrutable.
