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China’s economic future: Crisis or collapse?

opinionChina’s economic future: Crisis or collapse?

We do not see any obvious signals of an economic crisis leading to a political crisis now.

Recently, as China’s giant real estate companies such as Evergrande and Country Garden have been imploding, there have been more and more discussions about the future pace of China’s economic development, and many people believe that the collapse of China’s economy is inevitable. I think such a conclusion is open to question. For example, what exactly is meant by “economic collapse”? What kind of situation would give rise to “economic collapse”? Is China’s economy really going to collapse? All these questions deserve our careful and rational thinking and judgement.

Of course, there should be no room for debate in saying that China’s economy is already in a serious “crisis”. The situation of real estate enterprises such as Evergrande and Country Garden has revealed the very fragile state of China’s entire real estate industry. And we know that the real estate industry is the leading sector of the Chinese economy, involving many other industries upstream and downstream. It can be said that the real estate industry collapse is the outbreak of economic crisis. In addition, more importantly, the real estate industry is actually one of the biggest sources of income for the Chinese Communist Party, and the financial administration of land sales is the economic pillar of the Chinese government. Therefore, the impact of the real estate industry seriously affects not only the economy of China, but also the politics of China. This is where the crisis lies.

We must see: Evergrande and other real estate companies in the past announced exaggerated profit figures, which is in fact fraudulent behaviour. Here are two questions: 1. Is Evergrande the only one responsible for such fraud? Are the local authorities and auditing departments really unaware of this? As a matter of fact, the Evergrande crisis and the real estate crisis were created by these large financial consortiums in collaboration with the Chinese Communist Party authorities. Where does Xu Jiayin—the billionaire chairman of the board and Communist Party secretary of the Guangzhou-based Chinese real estate developer Evergrande Group—rank without the support of the government behind him? We have only seen the problems of Evergrande, but we should not overlook the responsibility of the authorities. 2. We can also see that not long ago, the Chinese Communist Party’s leading decision making organ, the Politburo, held a meeting to discuss the economy, and one of the important contents of the official meeting report was about the real estate market, which shows that the authorities are well aware of the severity of the crisis in the real estate sector, and that they have also tried to rescue the market. The question is: Can it be saved?

I think the root of China’s economic problems lies in the confidence of all social classes in China’s future economic development, which cannot be changed by initiating some hurried policies to attract foreign investment. The popularity of econometrics shows the feelings of the people and entrepreneurs. These feelings are much more real than import and export statistics, financial stimulus, etc., which show that China’s economic development is facing the problem of lack of confidence and public support. Without confidence, economic development is impossible. The issue of confidence is obviously not an economic issue, but a political one. Therefore, there is no solution to this problem. China’s economy is unlikely to recover, and the deep seated reason is still a political problem. Whatever the reason, the economic crisis has already happened—is in the process of happening—and will continue in the future.

However, an economic crisis does not necessarily lead to economic collapse. Japan has been in a slow motion economic crisis for 30 years. China’s economy, which has developed over the past 40 years, is still very large, and the objective existence of the market scale will lead to continued investment, including the entry of foreign capital, and will continue to do so. Gross Domestic Product [GDP] growth may decline significantly, but it should be no problem to maintain a very low growth rate. The problem is that China’s economic growth in the future will be at the low end of the scale. I want to emphasize the word “low end” because I think it is the most accurate term. Low end does not mean inferior, nor does it mean low speed, which is to say that the people will still be able to live, but their standard of living and quality of life will drop a lot, not to the extent of eating grass, but high consumption is unlikely. The increased focus on the marketplace economy shows that the authorities are also well aware of the problem. It is most likely that we will return almost overnight to Third World status after decades of market reform and opening. An impoverished socialism is likely to become a reality in China again.

When we discuss the economic crisis, many people are actually expecting the economic crisis to trigger political changes in China. I can understand this sentiment. However, if China’s economic crisis is characterized by a prolonged period of low end development, rather than economic collapse, then such a state of affairs may not necessarily trigger political turmoil. The tolerance level of the Chinese people towards the low end of life is an important variable. At least we do not see any obvious signals of an economic crisis leading to a political crisis now. On the contrary, the economic crisis will hurt the self-interests of the rich and powerful. Whether the loss of benefits will aggravate the discord and struggles within the ruling clique is, perhaps, a matter of greater concern.

  • Wang Dan is a well-known Chinese dissident and leader of the Chinese democracy movement. He is director of the Dialogue China think tank.
    Translated from Chinese by Scott Savitt.

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