How Xi Jinping’s authoritarianism is killing China’s economy | Business Beyond

Of all the gloomy economic data coming out of China these days, this is especially telling: For decades, foreign direct investment has flowed into China at ever-increasing rates as investors and

business

es seek to ride the wave of its economic boom, but Last year he fell off a cliff. Inflow into China fell to just $33 billion, the lowest level in 30 years. Trust is a key ingredient in any economic success story, and right now it is slipping away from China, no matter what the government does. It seems that companies or, basically, households do not believe the story. People in China, whether in government or the private sector, will tell you privately that they are genuinely concerned about the direction of the country and its future in a way they haven't for 30 years.

Many have been blamed for China's problems. things, from the country's housing crisis to the fight to get out of strict zero covid controls, but in this episode we will ask if there are more fundamental problems behind its crisis of confidence over time, the temptation of authoritarians to exercise Its control and choosing favorites and the loyalty of demand outweighs the market. This Chinese government is out of its reach. Is it trying to incorporate those hundreds of millions of people who are still poor into the middle class? welcome to

business

Beyond One of the most obvious ways to see how China's

economy

has changed in recent years is by looking at its near double-digit growth rate.

Growth has been customary in China for much of the past two decades, but it plunged during the Covid-19 crisis and the post-pandemic revival was quickly lost. Steam's GDP is projected to fall to 4.6% this year one of the lowest rates in 30 years one story in particular has loomed larger over the Chinese

economy

than any other in recent times it's ownership it's all a matter of property China's growth for years has been driven by the real estate sector a multi - the B decade part of the market was rational, the last 5 six year type was definitely increasingly irrational and, through Co plus a hand hard enough from Beijing, that real estate bubble did indeed burst, the real estate crisis pushed hundreds of hugely indebted companies like Evergrand. to default and bankruptcy as the crisis worsened, huge socioeconomic levels of society have been severely affected. three really key parts of the Chinese economy are affected: households, banks and local governments, households, all their wealth is in terrible properties for them.

Assets and liabilities of banks. they're all really bad real estate loans for them and then local governments are a really important economic player, they rely on income from land sales for infrastructure to pay people's salaries and of course land sales have also created and the collapse of the real estate sector came as China was grappling with another crisis, the covid-19 pandemic, China's zero covid policy caused Beijing to exercise extremely strict controls over public and commercial life in an attempt to maintain the virus numbers at an absolute minimum, but unlike most of the rest of the world, restrictions in China were not lifted until late 2022 and when that finally happened, it didn't go as well as many had hoped when everyone else got out. from Cy bit, you had very strong positive wealth effects, everyone's house prices had gone up, all the stock markets had disappeared. up, so he had this massive kind of wealth.

Tailwind behind the reopening, it was quite the opposite in China. It echoes ownership and there really was nothing to drive the postco spending recovery. China's economic crisis is bigger and longer than anyone predicted. China would emerge from the pandemic growing relatively well and, in fact, it does not have a crisis of confidence that has really started to stimulate consumption in an economy with little confidence, it is not easy, especially considering the enormous role that the real estate sector in In that sense, for as long as there is a long-standing economic relationship between deflation and reduced consumer spending, consumers may be deterred from spending if they expect further price declines and, compared to economies of size Similarly, China has a worryingly persistent deflation problem, in 2021 there was a global problem.

Inflation surges amid pandemic supply chain shocks and effects of government stimulus packages, but there was hardly any inflation in China and the country quickly entered a period of inflation, while economies like the U.S. The US and the eurozone economy reduced their inflation rates to healthier figures. what can be done a major government stimulus package is an option during the 2015 crisis China devalued its currency, slashed interest rates and poured money into property and infrastructure, but this time Beijing has been more reluctant and willing to endure a lot of pain. with the goal in mind to have more sustainable long-term growth, so he wants the real estate sector to contract in a controlled manner in theory to put China on a more balanced growth path in the future.

His plan is a controlled decline in the real estate sector. It appears to be part of a general reluctance to pump more money into a struggling economy. If you look at some of the other parts of the economy, our BL House tax revenue fell 20% and investment fell 10% last year, so if everything is falling, then, um, EV will be back in the problem. of knowing if the government has enough resources to stimulate the economy, so it seems to me that it's a cycle that um um may still be turning towards the disadvantage. and at the same time there does not seem to be a clear Plan B for the economy China has taken measures to stabilize the situation they have cut interest rates they have provided liquidity to banks, struggling real estate companies and local authorities, but nothing seems to have working, they have done a wide variety of things, of course, they have also tried to assure foreign investors that China is a good place to do business and that they can make money and get deals.

However, that still hasn't been enough, I think it shows. a very big problem because it shows that domestic businesses are somewhat indifferent to whatever policy is being phased out, which means that the government will basically need to provide an even clearer roadmap or maybe even a clearer one. A 180 degree turn to convince the market that policies are changing, so is there something else going on? Although Xiin Ping has not been willing to step in with a major stimulus package this time, some experts say it is his wish that the Chinese Communist Party have full control over the country that is causing much of the damage under President XI, the party Chinese communist has broken a kind of compensation it had with the Chinese people.

The pact was what I call, no politics, no problem and from 1979 until around 2015, when it was consolidated. power, the Chinese Communist Party basically left average Chinese alone to do their business, save and invest. The argument is that under Xiin Ping the Chinese Communist Party has become so authoritarian that it has compromised economic development, not all problems are solved by liberalization and simply allowing more market forces to function you need some discipline you need some order uh you need some degree of intervention um but xiin ping has really gone too far uh and I think it made a challenging situation worse and that wasn't meant to be It wasn't always inevitable Longtime China watcher Scott Kennedy believes that consolidation of XI Jinping's power within the Chinese Communist Party has made him even more controlling as the years have gone on and the more problems arose the more he reverted to his control strategy and that just accelerated and the pandemic really pushed those control impulses Furthermore, tensions with the US and the West as well, which is why almost every challenge he sees, he responds with the same approach, there are many recent examples to Let's back up the point where billionaire business magnet Jack Ma criticized the Chinese financial regulation in October 2020, which directly led to the suspension of the initial public offering of his company Ant Group.

A huge regulatory crackdown on several technology companies after the housing crisis was driven in part by the government. restricting companies could borrow an understandable move to rein in an overheated sector perhaps but certainly a heavy-handed move and speaking of heavy-handed there was also zero Co and what seems to have changed over the course of Co and she is the willingness to change in a positive direction, that is, more control is being imposed, there is more risk aversion, the party is becoming much more directive and partly due to us and external behaviors, but mainly internally, It is becoming much more about self-reliance and choosing winners and privileging the state sector over the private.

This approach has a clear impact on free enterprise, as many analysts say that both people and companies have become very careful about how they spend their money in China due to questions about what kind of actions the government can take. Let's take into account the future north southeast west Center the party controls everything that comes directly from Xin Ping's recent speeches and that is not how they are going to resolve things um I know that makes them feel better because they have things under control uh and They may have a superficial level of stability, but the reality is that it just depresses people.

China is suffering from what I call a long economic period, that there is a low energy residue of fear and it manifests itself in people saving more people saving more in cash. and liquid things to invest in durable goods or longer-term investments; people are less responsive to government stimulus packages; All of this feeds into a broader argument that while authoritarian regimes can stimulate economic growth at an early stage of development, they eventually run out of steam if control is the primary goal. The track record of authoritarian regimes sustaining growth is not good. Many times, whether it's Orban or Erdogan or Putin or even in Venezuela and Chavez or Maduro, you get an initial boost of growth, but over time, the temptation of authoritarians to exert their control and pick favorites and demand loyalty overtakes the market. , it's really hard to think of an example where that kind of state development has boosted the economic growth of economies that are in the middle trying to move up to the top half trying to advance to higher levels.

We have seen how China's growing

authoritarianism

under Xiin Ping has serious implications for the country's economy, but it also raises many other questions and one of the most important is about the future of Taiwan. She has repeatedly said that the island is part of China and that China will decide its fate. Her increasingly close relationship with Russian President Vladimir Putin raises a question: Could she see some kind of military intervention in Iwan as a way to divert attention? or change the dynamics of China's economic difficulties? This is a really interesting report. This is a difficult question and I've discussed it with senior American officials, you know they went from oh my God, China's economy is doing so well and it's so big that it's a threat to oh my God, China's economy is doing so bad that makes you want to Wag the Dog does something distracting, it's a threat, but China's level of integration into the global economy compared to Russia makes it a very different case.

China is not like Russia because of that 40+ year history of connectivity. As a result, China has a lot to lose if there is a war in Taiwan, not only regarding Taiwan chips, but will become a global economic pariah as long as Taiwan does not declare independence and the rest of the world recognizes that there is a independent duur. let's say, so the chances of war are really low, so you have to be extremely vigilant, but I think the chances of an open conflict in the Taiwan Strait are relatively small, yes, XI Jinping's presidency has raised questions about China's role in the world like no other. leader of the country since Mount Sadang, a whole part of this conversation is about how unique Xi Jinping is to be able to take a page from Putin's book or someone else's book and go down a different path, but I think at least what we know that the costs would be extremely high, that he would be risking the future of this communist party if he did so, that China's crisis of confidence may have other structural causes and that there is an important long-term issue that becomes more urgent with each passing day. country Aging and its population are reducing rapidly since the 1990s1960.

Births have far exceeded deaths in China, but since 2016 the gap has been closing and last year China's population shrank for the first time in more than 60 years as the population ages and becomes less children are born. Born Population decline will accelerate China is projected to have 100 million fewer people by 2050 and around 400 million fewer by 2075 A shrinking population is rarely good news for an economy that wants to grow the easiest way to To think about long-term Chinese economic growth is to compare it with Japan and see what is similar and what is different and learn from that experience, why China and Japan are similar and that fertility is declining below the replacement rate. the population.

This happened to Japan in the 9 years and was accompanied by a period of economic stagnation their population is shrinking extremely rapidly and this is a big problem for economic growth this is a big problem for the size of their economies it is a big problem for the balance between old and young people, as viewers in Germany and across Europe are familiar with but this is much more extreme and fast-paced than what Italy and others have seen in Europe. With all this bad news, it can be easy to forget how well the Chinese economy as a whole has performed over the past 40 years;

It may even be the It's true that the country has become a victim of unfair expectations because of all that success and it's certainly not all bad news when it comes to China's economic potential. The leadership has talked about maintaining a strategic focus, which some economists interpret it as an attempt to achieve sustainable growth by reducing the country's enormous debt and at the same time trying to develop technological supremacy in various fields. There are strengths in China that must be recognized. I think they fundamentally have the ability to break. make mid-tech manufacturing better and cheaper than anyone else in the world without paying their workers horribly poorly because manufacturing workers in China are reasonably well paid, and we see this in their potential dominance of electric vehicles and related industries , like batteries, so clearly there is a The fundamental strength is the technology sector that they are most optimistic about and if you look at some of the advances that have occurred in the last year, um, reasonably advanced semiconductors, the new plane from China, the Huawei phone it now sells to Apple, EVS batteries, solar power, uh, you can run.

Across a whole range of sectors in which China is rapidly catching up or leading the world, however, even when assessing China's strength in technology, there are risks that must be considered: high technology is very important and leading powers They have advanced high technology in a range of areas that help their economies, on the other hand, that is not the end of Beall, more than 70% of the Chinese who were born last year were born in the countryside, two thirds of those people They will never finish high school, that is the great challenge for China's economy. Helping those people get better education, get better healthcare so they can become productive citizens, if AI takes off, it will be great for the few highly skilled people working in AI, but it won't help the hundreds of millions who they need means There are many class jobs and that is something else that the Chinese government and the Chinese economy must consider.

What happens with China's economy has profound implications not only for its 1.4 billion inhabitants but for the entire world. Its economic success fueled decades-long global growth and collapse. It would be equally important, as China depends on the rest of the world, we are also connected to China and certainly if China suffers a significant economic crisis, they will be the most affected by those challenges, but the rest of the world. The world will feel it in various ways economically. Xiin Ping has spoken of the economic recovery being at a critical point and that there is still time for the country's leaders to rebuild confidence and, crucially, confidence in China's ability to return to higher growth.

The path, although not as high as before, is still there, and perhaps it is a matter of time that if the government party says something good, we did these things specifically under the Covid emergency and we are not going to do it. Again, people initially have doubts, but within a few years they will stop being so arbitrary interventionists, perhaps trust will be reborn to a certain extent and its growth rate will increase, but such a scenario may require an ideological change that today seems increasingly unlikely. richer, stronger, healthier and safer than ever, they should be celebrating the successful Rejuvenation of the Chinese nation, instead they are looking for conspiracies internally externally uh, everything for the leadership is glass three qus empty 2024 is the year Dragon symbolism in China will not go unnoticed by a leader who desperately needs to ignite one of the world's most important economic engines and extinguish doubts about the role he has played in its struggles.

That's all for this episode of Business Beyond and to improve what we do. I'd love to hear from you, if you have time please fill out the survey in the on-screen link or in the video description to tell us what you think about the show. Thank you so much for watching and until next time, take care.