China at a turning point. “People are losing faith in a better future”

If we were to create a hit list of economic topics covered by the world’s media in the 21st century, the prediction of the economic crisis in China would certainly be high on the list. This is due to both the importance of the economy of the Middle Kingdom and the model for managing economic affairs by the Chinese authorities, which is different from the Western one. Years pass, and there is still no sign of a major recession in China, but it would be a mistake to underestimate the great challenges facing Beijing.

In the second quarter of this year, China’s GDP growth was only 4.7 percent.which was a worse result both than what was recorded in the first quarter (5.3%) and what economists expected (5.1%). Although the growth rate is still relatively high on a global scale, in the case of the PRC we are not only talking about the economy, but also about politics – behind the Great Wall, the -authorities who state what GDP growth they aim for.

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– As a result, some of the activity is not economically motivated and not productive – comments Maciej Kalwasiński, analyst at the Center for Eastern Studies.

The plan for 2024 assumes returns of “around 5 per cent”, so there is no margin for worse than expected returns. Chinese propaganda, which is internally and externally directed, must deliver an “economic result”.

– The GDP target is lower than before showing that Beijing is accepting slower expansion. Today, economic security is the priority, not “artificial” growth, adds Kalwasiński.

The latest set of monthly data from the Chinese economy highlights the long-term challenges it faces. Retail sales (2% y/y) fell well below expectations (3.4%), while the overall picture was saved by industrial production (5.3% against the 5%) expected. At the same time, in the context of development beyond the PRC, experts have been reminding for years, like a mantra, about the need to move the economy away from the export routes and stimulate investment and domestic demand.

In this way, China, which has been the “factory of the world” in recent decades, could become somewhat independent of the recipients of its goods from abroad, who could limit their purchases because of both their own economic situation and political decisions. This is clearly seen, for example, in the context of the dispute between the PRC and the EU regarding electric cars. There are also fractures in American leadership (including in the field of technology), which may worsen after the November presidential elections, especially if Donald Trump wins.

So why don’t the Chinese just start spending more on domestically produced goods? Partly because they’ve barely emerged from many lockdowns and already have other big problems to deal with.

– Employment is not growing as fast as it was before the epidemic, the situation on the labor market is difficult. Many Chinese have lost faith in a better future and prefer to save more for a rainy day, says Kalwasiński.

The center of personal finance of many PRC citizens is real estate, which is responsible for about 70%. household property. The Chinese tendency to save is a subject for a separate article (the Chinese have a lot of deposits in banks, “only” about USD 20 trillion), but it is worth remembering that it is the result, among others, of : from a low level of social security. Meanwhile, in recent months, house prices have been falling and concerns about the plight of debt-ridden developers have been growing. Hotly debated in the West Troubled Evergrande has turned out to be the equivalent of the collapse of Lehman Brothers, but this does not mean that China’s real estate sector is already healthy. The authorities in Beijing are trying to reduce the problems that have accumulated over the years, although there is no unconditional support for developers, which is evident, for example, in the falling share prices of listed companies (in which ordinary Chinese also invested. their wealth).

In addition to trying to increase the fertility rate, the Chinese authorities see an opportunity to overcome the crisis in technology – as the number of workers of working age shrinks every year, there is a need on robots. An effort to transform the PRC from a country based on cheap labor into a technological powerhouse has already begun, and the apple of Beijing’s eye is in sectors such as artificial intelligence, energy, electromobility and food production. “China has become a technological superpower” – announced “The Economist” in June.

The strong focus on technology is to prepare the PRC for conflict with the US, both in terms of possible sanctions and in terms of direct weapons. Drawing conclusions from the sanctions imposed by the West on Russia, China wants not only to become more sustainable through greater self-sufficiency, but also to abandon its own technologies in its action costly to foreign partners. In an economy where the state is so important, the pressure is especially important – it is impossible to support households, develop high technologies and prepare an army for local or global battles at the same time.

– Given the choice between reducing the problem of low consumption and strengthening the “fortress” that the Americans are under siege, Beijing is choosing the technological option of “escape​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​frontward forward. For the Chinese authorities, security and technological progress are more important than improving the quality of life of the Chinese, said Maciej Kalwasiński from OSW.

– During the discussion of the Third Plenum, it was emphasized that in order to deepen reform in a comprehensive way, it is necessary to adhere to Marxism-Leninism, Mao Zedong’s thought, Deng Xiaoping’s theory, the important idea of ​​”three productions” and the vision of scientific development, and Xi Jinping’s thinking about socialism with Chinese characteristics in the New Era must be fully implemented – we read in the summary posted on the website of the Chinese embassy.

According to the OSW analysis, “the CCP authorities did not use the plenum to show that they have specific solutions to the problems and that they intend to support the economic situation.” – Beijing’s priority is still to prepare for a conflict with the US, says Kalwasiński.

Michal Żuławiński, Association of Individual Investors