This week, I’m recapping two of the latest episodes of The President’s Inbox—the first of which is Jim’s episode with Zongyuan Zoe Liu, the Maurice R. Greenberg fellow for China studies at the Council. They discussed China’s slowed economic growth. The second recap will be in a separate post tomorrow.
Zongyuan Zoe Liu, the Maurice R. Greenberg fellow for China studies, sits down with James M. Lindsay to discuss the causes and consequences of China’s faltering economy.
Here are four takeaways from Jim’s conversation with Zoe:
1.) China’s economy is faltering. Fifty years ago, China’s economy was, as Jim put it, “an economic afterthought.” Now, it’s the world’s largest or second-largest economy depending on the measure you prefer. But its breathtaking growth has finally come back down to earth. China is now experiencing an economic slowdown and its problems are multiplying. Zoe said it’s “too early to say” whether China is facing a short-term lull or long-term stagnation. Whichever is the case, as Jim pointed out, the Chinese economy has “fallen farther and faster than Chinese planners...and many Western experts predicted.”
2.) China’s economic challenges go well beyond a slowing overall growth rate. Youth unemployment is at an all-time high, so much so that Chinese President Xi Jinping is telling Chinese youth that they should learn “to eat bitterness.” The real estate sector is drowning in debt. Deflation looks to be taking hold. Perhaps most troubling, China’s demographics are alarming. Its birthrate has plummeted, and the population is aging rapidly. An older population doesn’t inherently mean that a country will enter a downward economic spiral. However, China’s pensions system is “buckling under an aging population,” creating yet another challenge for Beijing to address.
3.) China’s economic downturn isn’t primarily due to Xi’s commitment to Zero COVID. Many analysts expected the Chinese economy to boom after Xi reversed his zero-tolerance COVID-19 policy last December. That didn’t happen. One reason is that the Chinese people are skeptical that good times are returning. So rather than spending what they earn, they are saving for the proverbial rainy day. Zoe noted that the “extent [to which] the Chinese economy can recover is going to be dependent on confidence, and in particular, household confidence.” Restoring that confidence will be a challenge.
4.) China’s economic slowdown could perversely strengthen Xi’s grip on power. Zoe argued “that economic slowdown in itself is not hurting his ruling, but economic slowdown combined with a sense of American containment would actually strengthen rather than undermine his power.” Like other authoritarian countries with faltering economies—Cuba and Venezuela come to mind—China has blamed the United States, not the communist party or its policies, for its problems. Zoe pointed to recent export controls and outbound investment screening measures as giving credence to Xi’s argument. The result could be more nationalistic policies coming out of Beijing.
The economic news coming out of China has only gotten worse since Jim and Zoe spoke. A major Chinese real estate developer missed bond payments. The Chinese government has stopped reporting its youth unemployment rate after it hit a high of 21.3 percent in June. Stocks around the world are also feeling economic pressure. Hong Kong’s Hang Seng Index fell more than 20 percent last Friday.
If you’re looking to read more of Zoe’s work, check out the piece she wrote ahead of the curve that argued China’s economy wouldn’t necessarily come roaring back after the end of its Zero COVID-19 policies.