Four Big Mistakes by China

China’s impressive performance over the last forty years is coming to an end. The next forty years or even this decade will need radical changes to its strategy. Can China adapt to the new conditions and evolve? So far, the answer seems uncertain. Here are the four biggest challenges for China and how it seems to be failing in these critical areas.

Economic Growth

Gone are the days of double-digit growth. The average GDP growth for 2020 and 2021 combined was 5.1%. This year will be about the same as well. By the end of this decade, the GDP growth will be around 3%, slightly above developed countries. Meanwhile, China’s cumulative debt has risen to an unsustainable level over the last decade and will continue to explode.

The problem is that there is a lot of unproductive activity in China. Politicians engage in wasteful projects just to boost the GDP and rake in commissions (bribes). Infrastructure is good but building useless bridges and unused high-speed rail are money wasted that could have been used in meaningful ways to help the society.

Excess dependence on the housing bubble is starting to hurt China’s growth story. The collapse of real estate developer Evergrande is just the tip of the iceberg. The demographic crisis will worsen the economic troubles. In the coming years, the millions of empty apartments will face tremendous loss in value as there will be fewer workers, fewer young people, and fewer buyers.

Inequality

China’s GDP-per-capita is still only $12,500. While there are many billionaires and millionaires, and the top 10% of the society own 70% of the nation’s household wealth, most of the people are living on meager income. The so-called socialist/communist country is based on an exploitative model like any full-blown capitalist country. Migrants — rural Chinese people who moved to the cities — are still treated as second-class citizens; and many young people are doomed to a life of meager wages and long hours. This means that domestic consumption will never become the driving force of GDP. Inequality, of course, will exacerbate the demographic crisis, as fewer people get married and fewer babies are born. New births in China are down whopping 40% in the last five years.

One-man Rule

What China needs is a new leader, with fresh thinking. The same people who created the problem can never fix the problem, since it means acknowledging their mistakes. This is human nature, seen in every country. Xi Jinping has been unable or unwilling to fix all the major problems — slowdown in GDP growth, rise in debt, high inequality, demographic crisis, geopolitical struggles etc. Xi Jinping’s attacks on the hi-tech sector, free market and free speech might be politically expedient, but will have terrible ramifications. Also, Xi Jinping’s fake war on corruption is only an excuse to get rid of his political rivals.

Thus, Xi has been centralizing power and fueling personality cult. Forcing children to read about “grandpa Xi” will not fix any problem. This only reveals weakness and fear. A truly confident CCP/CPC would have rejected Xi’s autocracy and selected a new leader with a new vision.

Geopolitical Blunders

Granted that the U.S. tries to contain China, the strategy should have been to postpone the conflict as much as possible. China should have opened up its economy more to foreign corporations, especially those from Europe and the USA. Under Xi, China has antagonized India, threatened Taiwan, and fueled nationalistic anger towards Japan — all completely detrimental to China. China’s soft power has dwindled under Xi. As Deng Xiaoping suggested, China should have kept a low profile for another two decades and become more open.

Conclusion

China’s excessive fear of the coronavirus is also unscientific and a bit surprising. The goal should be to achieve herd immunity as soon as possible.

Of course, the U.S. and Europe are also stumbling badly in economy. That is good news for China, but doesn’t resolve the systemic challenges in China’s economy and society. Later this year, Xi Jinping will get anointed as the leader for life. Perhaps, that will give China the opportunity to bring in drastic reforms. Or, that could lead Xi to make bigger blunders. Let’s see…

2 comments

  1. There’s some truth in the article made thru western eyes, I presume. But I see it differently. China’s system of governance is very flexible. Policies which do not deliver the results expected could be changed very quickly unlike the so called democracies of the world. With the changing world, China is not expected to continue achieving double digit growth but plus minus 5>6% would be good enough for stability. No nation is corrupt free. China is making good progress in curbing it. Every nation have their own unique challenges. If the BRI continues to function as expected, provided it is not sabotaged by america, the world should be a much better place for all in the next 15 to 20 years.

    Liked by 2 people

  2. Hi Chris, with respect: I can’t say I agree with some of the sweeping statements you’re making
    – ‘China has antagonized India, threatened Taiwan, and fuelled nationalistic anger towards Japan — all completely detrimental to China. China’s soft power has dwindled under Xi.’
    – I see no basis for many of the claims you’re making here!
    p.s. China doesn’t have ‘one-man’ rule..
    Perhaps you’d be better off directing your ire toward the endless, ongoing, systemic disasters befalling the peoples of the west (and also abroad) due to their utterly corrupt political systems?

    Like

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