Podcast Summary
Challenges Facing China's Economy Under Xi Jinping's Third Term: China's economic growth is decelerating, and the country is expected to trail behind Asia's other major economies for the first time since the 1990s due to property sector downturn and fallout from zero-COVID policy. Xi Jinping's third term brings challenges to revitalize the economy and maintain quality of life for Chinese citizens.
As Chinese President Xi Jinping prepares for an unprecedented third term, he faces the challenge of revitalizing China's slowing economy. Despite decades of economic expansion, the country's growth is decelerating, and it is now expected to trail behind Asia's other major economies for the first time since the 1990s. The property sector downturn and the fallout from Xi's zero-COVID policy have compounded the urgency of these economic issues. Previously, China's economic growth followed a well-established playbook, but the next phase of growth seems to be elusive. This economic stagnation could negatively impact the quality of life for Chinese citizens and potentially threaten Xi Jinping's and the Communist Party's leadership. Ed White, Feet's China correspondent, discusses these challenges in more detail on this week's episode of Behind the Money.
China's Economic Growth due to Deng Xiaoping's Reforms: Deng Xiaoping's reforms led to China's rapid economic growth through infrastructure investment, property development, and export-led growth, but lack of comprehensive social safety nets may hinder future growth.
China's economic growth during the late 1980s and early 1990s was largely due to the reforms initiated by Communist party leader Deng Xiaoping, which included allowing capitalism, private property markets, and mass urbanization. These changes led to significant investment in infrastructure, property development, and export-led growth, resulting in China's rapid economic development. However, unlike many developed economies, China has yet to establish comprehensive social safety nets, leaving many people uncertain about their future. As a result, people are hesitant to spend their savings, and the economy may face challenges in sustaining growth once its labor force has grown significantly.
People in China don't rely on the government for services due to inadequate provisions: Despite China's economic success, lack of a social safety net forces individuals to save heavily, hindering consumption and business growth
In China, despite having various services, people don't rely on the government for them due to inadequate provisions. This results in high savings rates and underutilization of the population. For instance, Ryo Liu, a Beijing native and a well-educated middle-class man, was shocked to realize the government wouldn't cover his mother's hip replacement costs, leading him to save extensively. China's successful economic run throughout the 21st century didn't prioritize setting up a social safety net earlier, leaving individuals to bear the financial burden of uncertainties. Consequently, people invest heavily in property and savings, hindering consumption and business growth.
China's Consumer-Driven Economy Transition: A Work in Progress: Despite efforts to shift towards consumer-led growth, China faces challenges in implementing changes due to historical limitations and missed opportunities. Generous social services and potential labor disincentives are concerns, but studies suggest significant generosity is necessary before they become problematic.
China's transition to a more consumer-driven economy, as outlined in Xi Jinping's 60-point plan, remains a work in progress. Economists and Chinese officials have debated the reasons behind China's slow progress in this area, with concerns over disincentivizing labor and the potential costs of generous social services. However, studies suggest that significant generosity is necessary before such concerns become problematic. China's history as a developing economy may have limited its ability to implement such changes, and missed opportunities in recent years have added to the challenge. Despite these challenges, it's clear that China has a long way to go before its citizens feel confident enough to change their saving and spending habits, shifting the economy towards consumer-led growth. Xi Jinping's 60-point plan, introduced in 2013, aimed to address this issue by increasing the share of GDP dedicated to consumer spending. However, its implementation and success remain uncertain.
China's Missed Opportunity for Economic Reforms: Despite initial signs of potential reforms under Xi Jinping, China missed an opportunity for economic rebalancing due to high investment-driven growth, leading to significant challenges in accessing technology internationally and shaping China's economic and geopolitical landscape.
Xi Jinping, who came to power in China in 2012, was initially seen as a potential reformer with a clear plan for economic rebalancing through reforms like greater pensions and property tax. However, these reforms did not materialize on a national level due to China's high investment-driven growth that satisfied the Chinese Communist Party. Experts are puzzled as China missed an opportunity for good economic conditions both domestically and internationally, and now faces significant challenges in accessing technology internationally. Despite the world's significant changes since then, it remains unclear how easy or difficult it would be for the Chinese government to make this kind of shift today. The window of opportunity for meaningful economic reforms in China a decade ago may have closed, but the implications of this missed opportunity continue to shape China's economic and geopolitical landscape.
China's Economic Growth Challenges: Control vs. Creativity: Despite China's potential to transition to a consumer-driven economy, political resistance to change and regulatory oversight pose significant challenges, limiting creativity and innovation for large companies like Ant Financial Group.
China's economic growth is facing significant challenges due to the Communist Party's focus on control, which limits creativity and innovation for large companies. This issue comes to light with the case of Jack Ma's Ant Financial Group, which revolutionized payments in China but faced regulatory oversight due to its size and challenge to regulators' authority. China has the potential to transition to a consumer-driven economy, but the political system's resistance to change poses significant challenges. In the near term, China needs to address the property sector's debt problem without causing a financial panic. However, the true extent of the debt and potential contagion is unknown. Long-term, the lack of political reform could hinder China's sustainable growth and transition to a more productive consumer economy.
Challenges to the legitimacy of China's ruling Communist Party: Generations of Chinese people have only known economic growth. If their lives begin to worsen instead of just improving, they may start questioning the leadership, leading to potential instability for the Chinese government.
The legitimacy of China's ruling Communist Party, which has long been based on delivering improvements to the lives of ordinary Chinese people, could face significant challenges if the country's economic growth slows significantly and the leadership is unable to find a new growth model. This is a potential game-changer, as generations of Chinese people have only known economic growth, and if they begin to see their lives becoming worse instead of just improving at a slower rate, it's likely that they will start questioning the leadership. This is a significant shift, as the Chinese people have long trusted the Communist Party to improve their lives, and if they begin to lose faith, it could have major implications for the stability of the Chinese government.
