News Analysis

China’s economy has been mired in a sort of “silted” deflation: on the one hand, the country’s industrial growth has been stagnant as a result of the G-7-led global “de-risking” strategy against the Chinese Communist Party (CCP); on the other hand, Beijing’s move to increase the money supply has failed to help boost the economy as money is not flowing to people and consumption is still sluggish.

Data from the Bank of China, or China’s central bank, showed that at the end of April, the balance of broad money (M2)—a measure of the amount of money circulation in an economy—was 252.7 trillion yuan ($35.4 trillion), surging 12.4 percent year-on-year, while the proportion of RMB loans was 226.2 trillion yuan ($31.7 trillion), rising 11.8 percent year-on-year; and the stock of social financing amounted to 359.95 trillion yuan (about $50.5 trillion), an increase of 10 percent from the same period of last year.

These figures reflect a phenomenon in which the CCP regime has used more of the newly added money supply to settle government loans and social financing bonds.

Meanwhile, there are no signs of brakes on China’s deteriorating economy, with the national urban survey unemployment rate in April standing at 5.2 percent and the rate for youth aged 16–24 reaching 20.4 percent—the highest since it was included in the statistics in 2018.

Prof. Sun Liping of the Department of Sociology at Tsinghua University said in April at an entrepreneur summit that a new dual structure is forming in the entire Chinese economy: one side can be called the “national plan,” and the other is “people’s livelihood,” the Chinese portal Tencent reported on June 9.

Sun said the “national plan” includes critical infrastructure, high technology, advanced manufacturing industries, military industries, and government financing platforms, which are the focus of a country’s resource allocation, while the part of “people’s livelihood” refers to most of the private small- and medium- enterprises closely related to people’s lives, which also creates the majority of employment opportunities in China.

He analogized the two as the “upper body” and the “lower body,” saying that the “upper body” is like a “national plan” that feeds less population and labor force, but it takes up more resources, while the “lower body” akin to “people’s livelihood” that can support more people and labor force but was provided with fewer resources.

Sun said data showed the exports are increasingly concentrated in the “upper body,” and the proportion related to the “lower body” is decreasing. According to the General Administration of Customs, from January to May, exports of electrical and mechanical products, such as automatic data processing equipment, cell phones, and automobiles, amounted to 5.57 trillion yuan (about $781.21 billion), accounting for 57.9 percent of the total export value. In contrast, exports of labor-intensive products, such as clothing and textiles, were only 1.65 trillion yuan (about $231.42 billion), 17.2 percent of the total export value.

The Bureau of Statistics released that from January to April, the country’s fixed asset investment (excluding rural households) was 14.7 trillion yuan ($2.06 trillion), up 4.7 percent year-on-year. Among them, private fixed asset investment of 7.96 trillion yuan (about $1.12 trillion), an increase of only 0.4 percent year-on-year. Investment in high-tech industries grew by 14.7 percent year-on-year, with investment in the manufacturing sector and the service sector increasing by 15.3 percent and 13.4 percent, respectively.

The money and resources in the Chinese market mainly flow to some part of the CCP’s national plan, and “China’s economy is now a kind of ‘silted deflation,’” according to Sun.

Sun cited official data on social financing in the first quarter as saying that of the 14 trillion yuan (about $1.96 trillion) in social financing, the relatively advanced manufacturing sector took more than 70 percent, and then government bonds took 12.6 percent to pay off old debts of the government. In a word, “although the amount of money supply is increasing rapidly, it is mainly used in the ‘upper body [national plan],’ not the ‘lower body [people’s livelihood].’”

“But [if the money is consumed only] in the upper half, it cannot achieve the whole circulation cycle, and in the end, the upper half’s cycle won’t move,” Sun said.

According to China Merchants Bank’s 2022 Annual Report, 2.25 percent of Golden Sunflower customers—refers to those with total assets in personal accounts up to 500,000 yuan (about $7,000)—have 81.44 percent of the real wealth of the bank, among which 0.07 percent of the private banking customers account for 31.27 percent of the wealth. The remaining 97.75 percent of the general customers have only 12,500 yuan (about $1,753.2) in assets per capita.

Based on data from China’s central bank, China now has 700 million people in debt, and the total debt of the household sector is as high as 137.9 percent of disposable income, said Liu Yuhui, a professor at the Institute of Economic Research of the Chinese Academy of Social Sciences, on an April 7 financial topic conference, Chinese financial media Yicai reported.

On May 5, CCP leader Xi Jinping presided over the first meeting of the twentieth Central Financial Committee, stressing the need to promote transformation and upgrading of traditional industries, which cannot be phased out as “low-end industries.”

The Political Bureau of the Central Committee admitted on April 28 that “China’s economy has no yet strong endogenous power, demand is still insufficient, and economic transformation and upgrading face new resistance.”

From January to May, China’s imports and exports of IC products have seen a sharp decline of 24.2 percent and 17.2 percent year-on-year, respectively.

The so-called “new resistance” would be related to the influence of the international community’s “de-risking” approach against the CCP, which is led by the Group of Seven (G7) with industrial powerhouses of USA, Germany, UK, France, Japan, Italy, and Canada.

This approach may include three aspects, said China expert and veteran media worker Shi Shan to The Epoch Times on June 3, “First, high-tech research and development and precision semiconductor supply, the U.S., Japan, Korea, Taiwan, and the Netherlands alliance are looking to isolate the CCP completely.”

“Second, in precision manufacturing and vital raw materials, G-7 allies will impose relevant restrictions against China and seek alternative sources.

“Third, for areas like clothing, shoes, hats and toys, and other consumer goods, G-7 allies would maintain an open attitude of cooperation with China,” Shi said.

Shi believes the “de-risking” strategy hit the nail on the head of the CCP by attacking the most critical part of what the CCP needs to transform its economy, especially for industrial growth in the future.

Industrial growth “relies on technology, and the international community has imposed a technological blockade on the CCP. This trapped the CCP between transforming and upgrading its industries and keeping the so-called ‘low-end industries,’” Shi said.

The G7 Summit, which ended in Hiroshima, Japan, on May 21, expanded the scope of participating countries, with India, Brazil, Korea, Vietnam, Australia, Comoros, the AU rotating presidency, the Cook Islands, the Pacific Islands Forum presidency, and Indonesia, the ASEAN presidency, being invited to attend the meeting.

A joint communiqué stated at the summit that on economic issues, G-7 members were ready to “reduce excessive dependencies in our critical supply chains [with China].”

The statement emphasized the importance of “de-risking and diversifying” in the industrial chain, called for enhanced control of technology exports and investments in China, and decided to initiate the establishment of a “Coordination Platform on Economic Coercion” to increase “assessment, preparedness, deterrence, and response to economic coercion” from the CCP.

G-7 allies declared, “We will seek to address the challenges posed by China’s non-market policies and practices distorting the global economy. We will counter malign practices, such as illegitimate technology transfer or data disclosure. We will foster resilience to economic coercion.”

British Prime Minister Rishi Sunak said after the summit that “China poses the biggest challenge of our age to global security and prosperity.” “With the G-7, we are taking steps to prevent China from using economic coercion to interfere in the sovereign affairs of others,” Reuters reported.

The trade deficit between the EU and China has tripled in 10 years, said EU Commission President Von der Leyen. “This imbalance is partly due to non-market practices such as hidden subsidies, discrimination in public tenders, and other distortions created by China’s state capitalist system.”

Sun pointed out that there are three aspects facing a dismantling and restructuring after globalization: Europe’s dependence on Russian energy and resources; Europe’s and America’s dependence on the Chinese market; and China’s dependence on Western high technology, high-end equipment, and financial economy. He said the first two have finished or half-finished their reshuffling while dismantling technology dependence is underway.