【Epoch Times, October 23, 2024】 The Chinese Communist Party’s stubborn support for export-oriented manufacturing strategies has led China down a path of diminishing domestic benefits and increasing foreign hostility, ultimately falling into the economic trap it created for itself.
Recently, the Chinese Communist authorities have unleashed an assembled economic “rocket launcher” – the People’s Bank of China, the National Development and Reform Commission, and the Ministry of Finance have successively come forth with economic stimulus plans, yet none of them include significant measures to boost consumption.
The National People’s Congress approved the issuance of around $284 billion in special national bonds this month, but it is expected that most of these bonds will be used for local debt replacement and bank recapitalization.
This indicates that the overall agenda of the CCP’s economy has hardly changed, still moving forward in the direction of the so-called “new quality production forces” led by the state, with little attention given to household consumption.
Wang Guochen, a research assistant at the Chinese Economic Research Institute, told Epoch Times that this wave of economic stimulus has not touched on the fundamentals, essentially requiring the state to spend 10 trillion yuan to purchase inventory homes. From the People’s Bank meeting on September 24, to the National Development and Reform Commission on October 8, to the Ministry of Finance on October 12, and the Ministry of Housing and Urban-Rural Development press conference on October 17, the issue of fiscal acquisition of inventory homes was mentioned, but no concrete plans were provided. It wasn’t until later on October 17 that the Ministry of Finance mentioned that localities should issue bonds to resolve this issue.
He said, on May 17, Chinese Vice Premier He Lifeng proposed fiscal acquisition of inventory homes, but less than two weeks later, Zhang Zhengxin, a Chinese executive director at the International Monetary Fund (IMF), publicly criticized it, saying it would create moral risks and foster irresponsible housing speculation mentality among the public.
“This is definitely not a personal opinion. Daring to openly contradict He Lifeng must have had Xi Jinping’s approval behind it. So, this area becomes a no-go zone, cannot be done,” he said.
Wang Guochen stated that Xi’s policies have actually not changed, with fiscal expenditures, particularly the issuance of national debt, still being used for major strategic and security projects.
He mentioned that the recent market rescue efforts by various departments seemed to be striving urgently to hold press conferences, but the real leaders were absent. He Lifeng was touring Xinjiang, Shanxi, and Fujian during the meetings; Premier Li Keqiang went to Cambodia and attended Shanghai Cooperation Organization meetings; on the 12th, Xi Jinping and He Lifeng went to Fujian together.
“In other words, the real leaders are not concerned about how the economy is performing. The economic departments responsible for relevant matters may be dismissed if the economy looks bad, so they are very zealous.”
Sun Guoxiang, a professor at the International Affairs and Business Department of Nanhua University in Taiwan, told Epoch Times that the CCP fears over-reliance on consumer-driven economic growth, as it may weaken government control, especially the rise of the middle class and the accompanying demands for rights, placing pressure on the government.
The CCP’s policies have had disastrous implications for the Chinese economy, ensnaring it in an economic trap it created itself, a process that has been accelerating since 2020, leading to consequences that cannot be ignored now.
Starting in 2020, the CCP’s authorities began restructuring the real estate industry, causing many real estate developers to quickly go bankrupt due to their inability to obtain bank loans. Local governments lost a source of revenue from land sales and fell into debt crises; the CCP’s “zero-COVID” policy during the pandemic further compounded economic woes. Simultaneously, there was a crackdown on vibrant private enterprises in China, stifling private investment and cutting off employment opportunities for university graduates. It was during this time that tensions between China and the United States escalated, with Xi Jinping emphasizing self-sufficiency in technology, diverting resources away from potentially solving economic predicaments.
Up to the present, China’s property sales have plummeted by 24%, while household savings have surged. With factories producing excessive goods that cannot be sold, the Producer Price Index has been declining for two consecutive years, and consumer prices are teetering on the edge of deflation.
Faced with millions of vacant and unfinished apartments, a rising youth unemployment rate, declining wages, and a policy prioritizing the development of high-tech industries over the traditional economic pillar industries, the current state of the Chinese economy is characterized by: lack of corporate investment, restrained consumer spending, and local governments’ inability to provide public services.
In addition to providing one-time cash subsidies to poor families and some student loan funds, the CCP exhibits a pathological aversion to any policies with a “welfare” orientation. This means that tens of millions of unemployed young people are receiving little to no assistance.
Economic data has become increasingly worrisome. The youth unemployment rate released by authorities was 13.2% in June, skyrocketing to 18.8% in August. Although the September figures slightly decreased, they remained the second-highest for the year.
The collapse of the real estate market has made consumers reluctant to purchase big-ticket items, with many people paying off mortgage loans and accumulating savings. Without directly stimulating demand, attempting to persuade businesses and households to spend more could lead to a dead end.
Retail sales growth was only 3.4% in the first eight months of 2024, far below the government’s target of 5% GDP growth.
In September, more bad news emerged as China’s manufacturing sector entered its second consecutive year of deflation, putting immense pressure on corporate profits. Even China’s economic engine, exports, unexpectedly slowed down in the same month.
Walter Russell Mead, a columnist for The Wall Street Journal, pointed out that the CCP’s stubborn support for an export-oriented manufacturing strategy has steered China towards a path of diminishing domestic returns and increasing foreign hostility, ultimately trapping itself in an economic crisis it created.
He mentioned that the CCP’s excessive reliance on export-led economic growth, with a massive industrial economy relying on foreign raw materials and energy, as well as access to foreign markets, has made foreign partners wary due to China’s geopolitical ambitions and the avalanche-like growth of its enormous industrial base.
China has already dominated the global solar panel market and is poised to achieve similar success in the electric vehicle sector. Beijing also aims to surpass Taiwan as a leading producer of global semiconductors, solidifying China’s position as a global superpower in military and economic terms.
Other countries are sure to be dissatisfied with and resist the CCP’s ambitions in these areas, potentially worsening trade frictions.
Currently, the export value of the “new three items” (new energy vehicles, lithium batteries, and solar panels) decreased by 5.1% year-on-year in the first three quarters of the year, with their share of exports decreasing by 0.4%.
Wang Guochen mentioned that once Xi Jinping decides to confront the West, the path will inevitably lead to this direction. It turns into “self-reliance,” more industrialization, which leads to overcapacity, and overcapacity always requires exports, thus provoking more global opposition to the CCP.
“He wants to avoid unhooking from the supply chain, but his actions actually accelerate China’s unhooking from the global supply chain.”
On one hand, the CCP aims to stimulate the economy and restore confidence, but on the other hand, the risk of armed conflict erupting in Taiwan or the South China Sea is growing.
On the 14th, the CCP conducted the “Joint Sword-2024B” military exercises against Taiwan in the early morning, with the Coast Guard also participating this time alongside the army, navy, air force, and rocket force.
Wang Guochen stated that many countries are increasingly unable to understand or are very fearful of the CCP’s policies. While the CCP emphasizes economic development on one hand, it also engages in military expansion on the other; it hopes to attract foreign investment, yet foreigners within China inexplicably get detained. Currently, the CCP’s national security and military affairs systems are conflicting with the policy of commerce, finance, and the central bank, leading to increased global uncertainty and loss of confidence in China.
Sun Guoxiang noted that armed conflict between the CCP and Taiwan or neighboring countries in the South China Sea would seriously affect international trade. International investors’ confidence in the Chinese market might weaken, increasing the risks of divestment or shifting investment to other regions.
He mentioned that the international community, especially the United States and its allies, might impose strict economic sanctions on the CCP, including export bans on high-tech products, financial restrictions, or even blocking energy supplies, further diminishing China’s economic growth potential.
“Armed conflict would force the CCP government to allocate more resources to military expenditures, weakening the domestic economy further, which is already under pressure from the real estate crisis and local government debt. The high cost of military expansion and maintaining national defense may limit the CCP’s investment in infrastructure and social welfare projects, further suppressing domestic demand growth.”
This year’s Nobel Prize in Economics was awarded to MIT professors Daron Acemoglu and Simon Johnson, along with James A. Robinson from the University of Chicago, in recognition of their research on “how institutions are formed and how they affect prosperity.”
Many netizens point out that this year’s Nobel Prize in Economics can be summarized in three sentences: whether a country is poor or wealthy, the core factor is political and economic institutions; inclusive institutions that protect private property, promote fair competition, encourage innovation, and provide incentives to the majority, drive economic growth; extractive institutions characterized by unclear property rights, legal uncertainty, and unconstrained power would only serve as a tool for a few to exploit the majority.
This brings to mind the root cause of China’s economic difficulties, which is essentially a problem with the CCP’s system.
Sun Guoxiang noted that China’s high growth in the past few decades was primarily dependent on globalization and market-oriented openness, rather than the CCP’s system itself.
“The CCP’s communist system is not in line with the requirements of economic development. Power concentrated in a few leadership tiers can lead to policy errors that are slow to rectify or remain unaddressed. Additionally, economic resource allocation is not entirely market demand-driven, leading to resource wastage and inefficiency. The communist system emphasizes state control and intervention, suppressing incentives for enterprise and individual innovation.”
Wang Guochen mentioned that the recent Nobel Laureates in Economics stated that democracy is the truly effective way to promote economic development. According to Rostow’s stages of economic growth theory from the 1960s, as a country continues to grow, it will inevitably move towards an era of mass consumption, corresponding to the development of the service industry and democratization.
“In a communist regime, under authoritarian rule where there is no freedom of speech or market, how can the service industry progress? Our observations over the past few years show that the annual growth rate of the service industry has fallen behind the industrial value-added. Such practices will undoubtedly stifle future growth momentum.”
Wang Guochen suggested that if Xi refuses to abandon communist authoritarianism, the economy will inevitably stagnate. The worst-case scenario would be a Soviet-style disintegration, leading to even more isolation, likening it to North Korea; a better scenario would be a return to the early days of reform and opening-up. It definitely won’t be better than Japan’s lost 20 or 30 years, so the upper limit or ceiling for China would be Japan’s lost 20 years.
“The approximately 20 years of Japan’s lost period can be translated into an economic growth rate of about 0% to 1%. So, the best-case scenario for China would be growth between 1% to 0%. The remaining option is the collapse of the CCP,” he said.
Wang Guochen noted that in the future, it is likely to see more expansion of state-owned enterprises, with a plethora of grid operators and militia members, increasingly reliant on state support, reverting to the planned economy era before the reform and opening-up.
“When the economy isn’t doing well, societal discontent will inevitably rise, political turmoil will increase, and protests or riots will escalate across the country.”