Opinion | China's Economy Is in Serious Trouble - The New York Times - 0 views
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Some analysts expected the Chinese economy to boom after it lifted the draconian “zero Covid” measures it had adopted to contain the pandemic. Instead, China has underperformed by just about every economic indicator other than official G.D.P., which supposedly grew by 5.2 percent.
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the Chinese economy seems to be stumbling. Even the official statistics say that China is experiencing Japan-style deflation and high youth unemployment. It’s not a full-blown crisis, at least not yet, but there’s reason to believe that China is entering an era of stagnation and disappointment.
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With consumers buying so little, at least relative to the Chinese economy’s productive capacity, how can the nation generate enough demand to keep that capacity in use? The main answer, as Michael Pettis points out, has been to promote extremely high rates of investment, more than 40 percent of G.D.P. The trouble is that it’s hard to invest that much money without running into severely diminishing returns.
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financial repression — paying low interest on savings and making cheap loans to favored borrowers — that holds down household income and diverts it to government-controlled investment, a weak social safety net that causes families to accumulate savings to deal with possible emergencies, and more.
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Part of the answer is bad leadership. President Xi Jinping is starting to look like a poor economic manager, whose propensity for arbitrary interventions — which is something autocrats tend to do — has stifled private initiative.
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But China’s working-age population peaked around 2010 and has been declining ever since. While China has shown impressive technological capacity in some areas, its overall productivity also appears to be stagnating.
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very high rates of investment may be sustainable if, like China in the early 2000s, you have a rapidly growing work force and high productivity growth as you catch up with Western economies
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This, in short, isn’t a nation that can productively invest 40 percent of G.D.P. Something has to give.
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the government was able to mask the problem of inadequate consumer spending for a number of years by promoting a gigantic real estate bubble. In fact, China’s real estate sector became insanely large by international standards.
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what China must do seems straightforward: end financial repression and allow more of the economy’s income to flow through to households, and strengthen the social safety net so that consumers don’t feel the need to hoard cash. And as it does this it can ramp down its unsustainable investment spending.
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But there are powerful players, especially state-owned enterprises, that benefit from financial repression
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And when it comes to strengthening the safety net, the leader of this supposedly communist regime sounds a bit like the governor of Mississippi, denouncing “welfarism” that creates “lazy people.”
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Japan ended up managing its downshifting well. It avoided mass unemployment, it never lost social and political cohesion, and real G.D.P. per working-age adult actually rose 50 percent over the next three decades, not far short of growth in the United States.
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My great concern is that China may not respond nearly as well. How cohesive will China be in the face of economic trouble? Will it try to prop up its economy with an export surge that will run headlong into Western efforts to promote green technologies? Scariest of all, will it try to distract from domestic difficulties by engaging in military adventurism?