To my amazement, the increasingly authoritarian leader of China could go down as the greatest rally-killer in the history of modern global government.
To be sure, buried in the astonishing growth record of this century were the seeds of its own destruction, but Xi’s ham-handed political and economic management, powered by an overweening ego have bungled a vibrant economy into a surprising turnaround.
GDP growth could just possibly drop lower than the U.S. this year. In fact, fewer and fewer sectors are healthy, and then only by direct government intervention. The looming, but long forecast downturn is centered on the over leveraged housing and real estate sectors. Builders, developers, real estate speculators and home buyers are running into the harsh reality than prices can drop. The ripple effects are enormous, since the real estate sector may account for almost 30 percent of GDP, far above other developed nations.
The draconian Covid lockdowns reawakened harsh memories of brutal repression under Mao, undermining consumer confidence and spending. The touted Belt and Road initiative has run into its own predictable flaws. How do you repossess a bridge in Africa, for example?
There are bright spots in their economy – like EVs, hi-tech, and export consumer goods. The rest of their manufacturing behemoth is running out of stuff to copy cheaply and are unprepared for a shrinking and increasingly expensive labor force and fiercer global competition. When local governments rely on selling land to fund basic services, it is an obvious one-trick pony.
Another alarming development has been the Chinese government’s drastic reduction in economic data publication, like youth unemployment. After all, you don’t stop putting out good numbers.
Xi seems determined to achieve economic recovery with minimum government stimulus and maximum government control, so if nothing else we will test the economic theory that strong man policies can drive an economy. To be sure settling for a 2023 GDP growth rate of 4.5% (and dropping) is a problem only because of past growth rates and expectations.
The growing discontent of Chinese citizens has many economists and government leaders openly predicting not only has the Chinese population peaked, but China itself.
