Chinese economy is in a free fall. We will discuss why and the long term consequences.
Answering “why” in a single word: COMMUNISM i.e. dictatorship combined with a corrupt and exploitative economy.
These are the many reasons. Lets go to them one by one.
- Low wages: Do you know why China became an export powerhouse? Not because they are efficient. They kept the wages extremely low. That made the prices of their goods cheaper. Installing their wel-wishers in various nations (for e.g. Gandhis in India) they ensured that their goods flood rest of world. In nutshell, Chinese domestic market consumes much lower than it should.
- Rise of nationalist Govts: After Donald Trump in US and Narendra Modi come to power in India, they start imposing tariffs on Chinese goods due to which Chinese goods become costlier and domestic companies benefit. For e.g. Chinese steel exports to India have nosedived and Indian steel companies have turned net exporters. And since their wages are low, the Chinese themselves cannot consume they produce, their revenue reduces. Today Chinese society is going through painful unemployment. The Govt stopped producing the data as that will give them negative propaganda.
- China plus one policy: During Covid period, all nations start to serious contemplate a China plus one policy. Many companies are moving away to other countries like Vietnam, India, Bangladesh and Mexico etc. This is further worsening the unemployment in China.
- Lack of capitalist modes of investment: 30% of the Chinese GDP is invested in real estate. In India or US or EU people speculate on Gold or Stock Markets. In the absence of these, the Chinese speculate on housing. Due to that the housing prices sky-rocketed. An US person can purchase his/her house in California with 5 years of his/her average income, where as the same in China with 50 years of average income. This speculation was done by taking loans. Due to this, though there are many houses in China, there is no one to live there. A lot of money is invested in smaller cities where there is little scope of employment and this has further aggravated the real estate problem.
- Mindless spending on infrastructure: If a bridge is built on a river, it benefits people and helps economy. The second bridge will also help economy but lesser. IF 500 bridges are built on the river, then the economy activity will be generated only till the bridges are under construction. Later most of the bridges will become useless. And when you have to come to repay the loans, it will be tough to repay as the infrastructure is not generating money. This has what exactly happened. Chinese have invested on a lot of worthless infrastructure projects through debt just to show the greatness of the Communist Party, but now those dead investments are biting them back. Lot of bullet trains were built, but Chinese society is not as rich as the Japanese society to afford bullet trains. Bullet trains will be next sector to fail after the real estate. China invested in Belt and Road Initiative (BRI) by bribing their corrupt leaders. But in many places people revolted against the Chinese (Pakistan for e.g. ) and most BRI projects are incurring losses. There are many highways in China where no humans can be seen riding.
- Lack of check and balances: A person or institution can make mistakes, but there should a check and balance on the person or institution to minimize that. For e.g. India we have the Opposition parties, Judiciary, CAG who can spook the Govt if it does some mistake. Where as all these are absent in China. Due to this the state run banks kept lending to real estate sector, useless infrastructure projects to help water the pockets of the businesses having links with the CCP with zero opposition.
- China’s one child policy: The dictatorial Govts are whimsical. In 1980s they suddenly enforced a single child policy just like Indira Gandhi wanted to do during emergency. The outcome was disastrous, how? The number of males far exceeded females and the demographics became flawed. The people of working age have nosedived and will fall further. Coupled with high house prices, many Chinese don’t want to start a family. Chinese society is deeply obsessed with Houses just like Indian society is obsessed with Gold. The difference is that House is an essential commodity where as Gold is not.
- One Party and One person rule: Why democracies work well? Because the nation can choose a ruling party or person depending on the situation. But now, the Chinese premier has established himself for life. Due to this, he will continue with the same political and economic policy as before. For e.g. after Great Depression, Roosevelt took steps to raise the wages and thereby increase purchasing power. Had China been a democracy, the new ruling party would have taken such steps. But none of that is going to happen.
- Alliance with Russia: The Communist Govt in China has been installed by Russia. It is a fact that Russia has created and nurtured India’s biggest enemy. Putin has got stuck in a never ending war with Ukraine and needs Oil prices to be high. CCP is working with Putin to help keep Oil prices high. This is harming China as it mostly imports Oil.
Where is this headed to? The CCP has deeply entrenched itself in China. Due to corrupt and vested interests coupled with single person rule, no new ruler will come to power who can steer the society in a different direction by inducting bitter medicine just as Modiji did in India.
Hence, one civil war brought communism in China and another civil war will destroy it.
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