Whilst some of us might view the western media’s take on the Chinese economic implosion as an exaggeration, our meetings with people close to the coal face on our recent trip to the Far East suggested otherwise. Things seem to be unravelling thick and fast driven by factors – economic, financial and political which we don’t fully understand. Stephen Roach, the former Chairman of Morgan Stanley Asia and currently a Yale professor, takes a stab at these factors in this piece for the Project Syndicate. Roach, already an author of a book on America and China is set to publish his second this November – Accidental Conflict: America, China, and the Clash of False Narratives.
Roach refers to three powerful forces at work contributing to the Chinese economic slowdown: “a structural transformation of the economy, payback for past excesses, and a profound shift in the ideological underpinnings of Chinese governance.”
He then goes on to elaborate on each of these three:
“The structural explanation puts an optimistic spin on the slowdown by framing it as the byproduct of a strategy aimed to improve the quality of economic growth. By staying the course of hyper-growth for too long, China became increasingly afflicted with the “four uns” of former Premier Wen Jiabao – an economy that was unstable, unbalanced, uncoordinated, and (ultimately) unsustainable. Rebalancing was the only way out – especially if it led to greener, consumer-led, and services-intensive growth that addressed the twin goals of balance and sustainability. If slower growth was the price, it was well worth paying it.
…But there is good reason to believe that China’s slowdown may also be more of an unavoidable payback for the excesses of the hyper-growth era. This line of reasoning was, in fact, telegraphed in 2016 by a high-profile interview with an “authoritative person” published on the front page of the Communist Party’s organ, People’s Daily, which warned of the potential Japanization of an increasingly debt-intensive, bubble-supported Chinese economy. An overly leveraged Chinese property sector fits this script, as does the debt-fueled expansion of state-owned enterprises since the 2008-09 global financial crisis. For China, this became the case for deleveraging, well worth the short-term price to avoid the longer-term stagnation of Japan-like lost decades.
Finally, a major reversal in the ideological underpinnings of governance is also at play. As the revolutionary founder of a new Chinese state, Mao emphasized ideology over development. For Deng and his successors, it was the opposite: De-emphasis of ideology was viewed as necessary to boost economic growth through market-based “reform and opening up.”
Then came Xi. Initially, there was hope that his so-called “Third Plenum Reforms” of 2013 would usher in a new era of strong economic performance. But the new ideological campaigns carried out under the general rubric of Xi Jinping Thought, including a regulatory clampdown on once-dynamic Internet platform companies and associated restrictions on online gaming, music, and private tutoring, as well as a zero-COVID policy that has led to never-ending lockdowns, have all but dashed those hopes.
Equally important has been Xi’s fixation on national rejuvenation, an outgrowth of his so-called Chinese Dream that has led to a far more muscular Chinese foreign policy, in sharp contrast to Deng’s more passive “hide and bide” stance. Not by coincidence, this has fueled the trade and tech wars with the United States, given rise to China’s “unlimited partnership” with Russia, and stoked tension over Taiwan – all of which point to the unwinding of globalization, which had long benefited China more than any other country.”
Roach ends by sharing his mistakes on expecting China to manage the transition much better on each of these factors than it actually has.
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