In March, China announced that it expected GDP growth to be 5.5%, however, according to a report by Goldman Sachs, not only will they not reach that figure that figure but China’s GDP may reach 3%.
July’s economic reports showed a drop in consumer purchases, industrial production declined, and investments were also reduced.
According to Lawrence Summers, former U.S. Treasury secretary, several factors contributed to the economic stagnation. On the one hand, Chinese debt is one of the largest in the world and makes up 330% of its GDP, according to 2019 data. Another important factor is the direct participation of the CCP in state-owned and private enterprises, which has increased in the last few years.
On the other hand, the aging population and low birth rate in recent decades is severely affecting Chinese society. The economic crisis that has worsened since the pandemic is causing more unemployment and a lack of stability among young people of a family-forming age.
A young Chinese woman, Sandy Liu, told the Wall Street Journal that she had plans to marry her boyfriend and buy an apartment in Beijing. However, the engineer, a fourth-year graduate of a top university, was laid off this summer from the technology company where she worked. “I can’t imagine getting married and starting a family without a salary,” Liu said.
Another example of the economic consequences due to the demographic crisis can be seen in Heilongjiang province, once one of the country’s most important industrial centers. However, with an aging population – 23% of the population is over 60 years old – and the outflow of young people seeking jobs in other provinces, the outlook for the region is not very optimistic. In the 1980s and 1990s, the average birthrate per year was 600,000. In 2021, only 113,000 births were registered. The low number of births reflects a negative population growth rate. Heilongjiang, with a birth rate of -5.5% is outpacing Japan and South Korea.
Did the “Chinese dream” of surpassing the United States fizzle out?
Several economic experts and analysts predicted that China would grow economically, and projected a higher growth than the United States.
However, according to former U.S. Treasury Secretary Lawrence Summers, these predictions are similar to what happened to Japan in 1990 or Russia in 1960.
Summers said on a Bloomberg Television program with David Westin, “It was taken as a given six months or a year ago that at some point the Chinese would overtake the U.S. economy in terms of total GDP at the market exchange rate,” Summers said on a Bloomberg Television program with David Westin. He went on to say, “That’s much less clear now.”
Leland Miller, founder of research firm China Beige Books, commented in an interview that he believes China will fail to grow rapidly in the near future. “Everybody talks about what will happen to China’s growth, how it will drive the world, that could be a potential future […] But what will happen if China, because of its demographic problems, economic challenges, political instability, and etc., gets overwhelmed, peaks […] and Chinese leaders would realize that they are missing their opportunity. This will push China to become more aggressive, with the Taiwan issue, it will take action and there will be risks.”
The communist regime’s zero COVID policy is also seriously affecting local economies. According to James Palmer, China specialist and author, “The endless cycle of encirclement has given this year a sense of déjà vu inside China. Even when cities are liberated there is no burst of freedom or spending; instead, people begin to dig in waiting for the next outbreak.”
With the CCP lockdowns, state revenues also fell sharply, increasing debt. Sales for major real estate companies fell by 60 percent in the month of May alone. Chinese internet users commented that the Central Bank of China reported that there are almost 40 million homes with mortgage problems and more than 10 million homes are in foreclosure.
One of the policies promoted by Xi Jinping, the “common prosperity” campaign, calls for wealth redistribution and requires large companies to “voluntarily” donate their incomes. Tencent announced a donation of 100 billion yuan ($14.58 billion), while Alibaba announced that it would donate the same amount in 2025.
At the beginning of the COVID-19 pandemic, compared to the United States, China was economically strong, even, according to official figures, the country was growing. However, in 2021, the United States started an accelerated growth that surpassed China, even with all the pressing problems of its economy, such as inflation, and the consequences of the Russian-Ukrainian war.
Despite the reforms made by the Communist Party to counter slow economic growth, such as changes in the one-child policy, the financial rescue of some companies in the real estate market, and other measures, China has failed to recover as fast as expected.
With the 20th National Congress just around the corner, and Xi bidding for a third term, all the measures and reforms aimed at ensuring a more stable social climate are not yielding great results.