2023
It’s been nothing but grim news for the Chinese economy this year. A hoped-for COVID-19 recovery never materialized after years of repression left the public wary of spending, giving it a case of what economist Adam Posen dubbed “economic long COVID.” (Hear him discussing that idea on FP Live.) Real estate giants have been on the brink of collapse all year. Even the Communist Party has reluctantly acknowledged the scale of the problems it faces, although officials claim that things can only get better. And Chinese dictator Xi Jinping needs someone to blame for everything going wrong.
The sharp slowdown has hit hard in a country that has experienced three decades of uninterrupted high growth. (It would have been four, if not for the interruption of the protests and killings of 1989.) Like the European “30 glorious years” of the postwar era, the notion that each year would be better than the next came to be taken for granted; those days are over.
Here are five perspectives on the Chinese economic crisis—and the impact that it’s left on the public.
1. The Chinese Communist Party Wants the Property Bubble Back
By Robert Foyle Hunwick, Jan. 10
The Chinese growth story has been about property and construction—especially for an urban middle class that was given its homes by the state in the 1990s and watched their value rocket. For years, the government tried to deflate the property bubble, but now it’s desperate to reinflate it. “With unreliable and government-fiddled stock markets, 70 percent of Chinese wealth is held in real estate,” writes British author Robert Foyle Hunwick, an expert on crime in China, “while land sales remain the main source of income for those same corrupt provincial administrators.”
Corruption helped fuel the real estate market as officials bought up valuable property, but it was also a massive source of corruption itself. Real estate deals were greased by bribery, and local leaders grew fat off the proceeds. Everyone else got sucked in, too, and may be left holding the bag. When it comes to presales, for instance, which are the mortgages that most Chinese homebuyers take out on as yet unbuilt apartments, “there’s a local legal twist to it that has caused further headaches: In China, the lender can go after the borrower, as well as developers, if they wish to reclaim any unpaid debt.”
2. How China’s Education System Trapped a Generation
By Helen Gao, June 22
China’s youth unemployment has reached such high levels this year that the government stopped publishing the statistics. For a generation of college graduates raised in cutthroat educational competition against their peers, the discovery that promised rewards have vanished has been traumatic. As Gao, a writer and reporter in her 30s, describes it, “When I read news about state crackdowns on the private sector, I feel a sense of déjà vu. The industries under assault—private tutoring, property, tech, and finance—employed the country’s best and brightest.”
Young Chinese have turned instead to “lying flat”—giving up on the rat race and working the minimum that they can in order to survive. As Gao says, she was taught to sneer at the slackers among her peers, but now she thinks they had the right idea all along. “As my generation’s once-bright prospects fade, the truth comes out: We thought we had left school behind when we graduated. It turns out school has followed us into adulthood and makes us its pupils still.”
A man sits in front of a store in Rudong, in eastern China’s Jiangsu province, on April 27. Jade Gao/AFP via Getty Images
3. Xi’s Policies Have Shortened the Fuse on China’s Economic Time Bombs
By Zongyuan Zoe Liu, Sept. 6
China’s economic problems run deep, writes political economist Zongyuan Zoe Liu, from sluggish consumption to a demographic crisis to a housing bubble. But Xi’s policies have taken existing fault lines and deepened them. “Economically, Xi has been a bull in a china shop. His economic policies have often shifted focus but always emphasize the party’s overarching control across nearly all dimensions of China’s economic and financial activity.”
Xi’s obsession with top-down control has wrecked the chances of thoughtful reform. While there was once room for policy experimentation at a local level that could be scaled up later, today the pressure to appeal to the man in charge is stronger than ever. “Chinese policy thinkers attempted to compensate for the absence of prudent economic strategy under Xi by ceaselessly leaping from one grand idea to the next under the banner of national rejuvenation,” Liu writes.
4. China Prefers Guns to Butter
By Jacqueline N. Deal and Michael Mort, Sept. 7
As the economic crisis bites and cities struggle to pay pensions or welfare, there’s one institution that rarely goes short in Xi’s China: the military. Defense spending has kept soaring upward in the hope of winning a confrontation with the United States—or out of fear that Washington might strike first.
“Of course, the history of PLA [People’s Liberation Army] entanglement in China’s domestic economy makes it difficult to discriminate between defense investment for military purposes and internally oriented stimulus spending (i.e., make-work),” Deal and Mort, who run a Washington, D.C., consultancy, note, but “in the event that China continues to fail to transition to sustainable consumption-based growth, Beijing will be left with one of the biggest hammers in the world, and recalcitrant parties abroad may all look like nails.”
The COVID-19 pandemic caused a temporary slowdown in spending—but the economic crisis hasn’t. “PLA investment stalled during the height of COVID on the mainland in 2020 as Chinese shipyards switched from building PLA Navy vessels, a traditional cost center, to building commercial ships—potentially because constructing warships requires tighter working conditions than constructing bulk carriers, and health concerns were paramount. But the spending increases appear to have resumed by last year and to be outstripping GDP growth once more,” they write.
5. Maybe China’s Economy Isn’t So Doomed
By Bob Davis, Oct. 17
Amid all the bad news, some analysts remained bearish on China’s long-term prospects, pointing to the way the country had successfully ridden out previous crises, such as the global crash of 2008 or the peer-to-peer lending scandals of 2015-2018. Veteran China economy reporter Bob Davis took a long look at the optimists. “The optimists’ case relies on a close examination of Chinese economic data but also reflects the view that while President Xi Jinping and the rest of the Chinese leadership are hard-liners politically, they are economic pragmatists who want to follow in the tradition of Deng Xiaoping, who led China’s opening to the West,” Davis writes.
There’s certainly been a tendency to read any downturn in China as doom for the Chinese Communist Party—and it’s worth remembering that states survive recessions, or even depressions, all the time. “Every time the Chinese economy stumbles, there is a tendency to say that finally the end is near,” Cornell University economist Eswar Prasad told Davis. “The optimists’ view might be too optimistic, but it provides some grounding, so we don’t get too carried away every time the Chinese economy stumbles.”