“What are some of the key factors contributing to the complexities and challenges facing China’s economy, and could the government address them?”

China has experienced immense economic growth over the last decades, often times reaching a yearly GDP increase in the double digits. Many experts have speculated that China will eventually take over the US position of geopolitical world leader, thanking their immense manufacturing capabilities due to rapid technological developments and its vast population. But recently, this picture has been damaged, illustrated by the Evergrande crisis, China’s largest property developers. Going to another extreme, suddenly headlines appear how China’s economy is deeply flawed and may come crashing down real fast.

We noted how expectations were (and of course still are) sky high but are highly unrealistic. China has been a manufacturing economy which makes it sensitive to exogenous shocks like the Covid-19 crisis. The influence of such fractures must not be overstated but have the potential to be quite impactful as China lacks a big banking centre like the Dutch and English have, which had been situated in Hong Kong. Though they have somewhat transitioned themselves to become mineral exporters as China has rich deposits of most notably lithium, which is highly sought after by other states. 

Another interesting aspect is that China is no longer able to devaluate their currency, keeping the wages low and ensuring that they could offer their exports on the world market at an extremely low price. As a solution, the government has bought up all Dollars to make it scarcer. This ensures that even though the wages of Chinese workers have quite substantially increase in Yuan, it remains relatively low when compared to the Dollar value, especially when compared to South Asian states. The average Chinese still lives relatively moderately despite China being the second largest economy in the world.

Where the West is experiencing rapid inflation, China’s Yuan dropped in value. This is great in theory when you produce more goods at a greater efficiency but is worrying when it comes from a drop in demand. Many states have started to restrict the import of Chinese products, limiting China’s potential sales market. Though it has been able to offset this loss with extra sales to Russia and the Global South. The CCP could have also opted for stimulus packs, a measure used by many Western countries, to increase internal demand. But consumerism does not align with the CCP’s economic views nor with China’s general culture, so China remains focused on increasing its potential exports and tapping into new markets.  so that they could offer their exports on the world market at an extremely low price.

Furthermore, the Chinese demographic has shifted immensely with childbirth declining rapidly as a result to better healthcare and the one-child policy. China has benefited from its big working force, but a large wave of pensioners is looming. Besides, young Chinese adults have been educated to work in the knowledge industry instead of factories. But the economy has failed to transition, leading to a high unemployment under educated Chinese youth.

To keep the Chinese economy running and account for the gap left by the collapse of the property market, Xi Jinping’s government has decided to invest heavily into its military sector. This has both solved the semi-immediate financial problems as well as increasing China’s hard power capabilities. After all, you gain more geopolitical power from manufacturing aircraft carriers than the newest iPhone. Naturally, increasing your military means has implications as other states, especially certain South Asian states like Vietnam, Philippines, etc., may feel threatened. But this may not hinder China too much as it increased their efforts to forge diplomatic ties all over the globe. For example, they have brokered a normalisation deal between Saudi Arabia and Iran, something the Americans could have never done. Likewise, they are a major actor in the process of ‘dedollarisation’, reducing the global reliance on the dollar and thus American influence.

So, when we look at the big picture, we see that the Chinese economy is deeply flawed, but there is no imminent threat of total collapse. Its military investments and mineral exports have stabilised the current state of financial affairs but is a rather temporal fix and does not address the underlying, structural problems. Granted it will be decades until long-term effects will become apparent, and an economic decline does not immediately translate to a loss in geopolitical power. Our expectations have probably been too high as no economy can sustain such immense economic growth. But there is no doubt that China will remain an elite actor within international politics for the foreseeable future.

jelletimmermans