PR OPED by Lieutenant General Shankar (retired)
China’s phenomenal rise is due to debt that fueled exports of manufactured goods and infrastructure investment. Its vast manufacturing capacity has made it the world’s factory and the starting point for most supply chains.
Knives and industrial machinery from China spread to every corner of the earth. Debt-fueled investment drove real estate and infrastructure, creating a glamorous China that was the envy of the world. Those were dizzying days of double-digit growth.
Everyone knew the growth was lopsided because China was hurtling through it, but the momentum went with it. China’s consumption and services sectors slumped despite all the growth hype. Someday, it will bite them. But who cared?
One fine day, Mr. Xi found the ultimate solution: the Belt and Road Initiative (BRI). Like BRI, the octopus’ tentacles have reached almost every corner of the earth. The aim was to maintain the external flow of exports and services and generate profits. The inward flow of cheap raw materials continued to feed that hungry manufacturing vortex.
China could not stop its pursuit of world domination. It was a runaway train with Xi Jinping and his band of wolf warriors at the helm. They wanted to grab the world by the scruff of the neck and turn it into the territory of the Middle Kingdom. They threatened the world, especially the wealthy. Those who previously welcomed China’s rise are now completely alarmed.
The red light on this runaway train went on with the arrival of the domestically produced Wuhan virus. Please look back. The “Wuhan germ” has destroyed globalization and caused geopolitical disagreements. The world has deglobalized into islands seeking self-sufficiency through risk avoidance/decoupling from China. It broke the mercantilism of the BRI.
The United States, India, the European Union, Australia, Japan, South Korea, and many others moved away from China and sought manufacturing self-sufficiency. It just disrupted most of China’s flows. The outer part of the dual circulation model began to fall. Overwhelming internal circulation became a problem.
Suddenly, China realized that Chinese consumption was more important to keep the trains moving. But the runaway train had two handbrakes on it: an ordinary Chinese man and an extraordinary Chinese Communist.
The famous social contract between the Chinese people and the Communists, “You give us freedom, and we will give you prosperity,” has long kept them in separate spheres of existence. I kept it.
The magic worked until they stopped interfering with each other. Unfortunately for both, the magic was over. They began to interfere in each other’s territory. Collectively, they slammed the brakes on the runaway train.
Communists need the Chinese to consume. The communists alternately force, coerce and beg them to consume. Something they never had to do before.
However, the Chinese are not serious. They are refusing to spend because they have lost their jobs and their salaries have been cut. When social media platforms are flooded with posts about unemployment and job-hunting despair, Chinese people wonder why the government feels they have money to spend.
“The stock market and real estate are depressed. Investments are shrinking. No one dares to spend money. The economy is not doing well. Everyone is worried about the future, so why am I? Do we really need to spend money?” Many Chinese people think this way. This is where history comes into play.
Elderly Chinese people are by nature frugal because they have endured years of starvation and starvation. They have lived through poverty. The Chinese had no money to splurge. If there’s one thing they fear as a nation, it’s the fear of hunger.
Now, that’s a powerful emotion. When Xi Jinping talks about protecting the “iron bowl,” he is only stirring up fear of hunger and the need to save more for the rainy days ahead. After 30 years of unnaturally opening the purse strings, China’s culture of saving and not spending is returning to normal as the social contract breaks down.
To save the economy, the communists are trying to do everything but direct transfer stimulus. They know that if money goes directly into the pockets of Chinese people, it will go straight to the banks and will not cause consumption. After all, communists are also Chinese! They know themselves best.
The harsh reality is that unless people are wealthy, they cannot consume and the social contract cannot survive. That is what Deng Xiaoping and his successors Jiang Zemin and Hu Jintao, who struck this deal, tried to do, ultimately turning China into a rich consumer nation.
It was only then that China became an economic power. Every second-rate Chinese economist knows this. However, when people become wealthy, they seek freedom. When Xi Jinping came to power, he realized that the Chinese Communist Party was losing control and ultimately losing its power.
Xi Jinping reversed the trend of opening up and reform and stopped the screws of communism. Now the communists are trapped in their net. Communist countries were not wealthy. When people become rich, communism will disappear. When people become rich, the Communist Party of China will become as irrelevant as the Communist Party of India in West Bengal!
As a result, the people of Communist China cannot become wealthy and must be kept in poverty for the Chinese Communist Party to maintain power. Xi Jinping is trying to create a nation of poor people within a rich nation.
It is unnatural just because the people make the nation prosperous. All confused? The truth is that Xi Jinping and the Chinese Communist Party have a choice. A prosperous China with wealthy people means the Chinese Communist Party has lost power. The Chinese Communist Party coming to power means poor people in China. That is the general direction of China in the future!
But Xi Jinping and his Wolf Warriors are strong and undaunted. They seek to stimulate consumption and create jobs through investment in manufacturing and infrastructure rather than real estate.
They hope the jobs created will trigger a wave of consumption. The question for Chinese private companies is where to sell their manufacturing output in a world torn apart by wars, political hurdles, supply chain and energy disruptions, protectionism, inflation, and climate change. be.
There are other issues as well. China’s private sector accounts for over 60% of China’s GDP. But confidence has been eroded by President Xi Jinping’s strict coronavirus lockdown and sweeping crackdowns that have brought down internet giants, gaming and tutoring in recent years.
When weeded out by shared prosperity, the private sector loses trust in government proposals. Rich businessmen do not earn money for poor people. Isn’t that self-evident? It is no wonder that private investment will decline further in 2023. China’s 31-point action plan to revitalize private industry is not working.Xi Jinping is looking for 32 peoplen.d. point!
On another issue, the less said about the recent debt-driven infrastructure push, the better. Another 2,500 kilometers of high-speed rail is on the horizon for China’s infrastructure drive. This is additional capacity in areas that have excess capacity and are already underutilized.
All of this will create more ghost trains, ghost roads, ghost parks, and ghost public works to complement the ghost city. When it comes to debt, congratulations to China for finally overtaking the US in debt-to-GDP ratio!
Michael Pettis says, “China’s soaring debt is not a problem in itself, but rather a symptom of the problem. Cumulative but unrecognized losses related to allocation. Communist China is building high-speed rail to slow down!
Take a step back and think about it. China faces some serious contradictions. Debt must be reduced while stimulating growth. It wants the growth of capitalist markets in a socialist environment with Chinese characteristics (whatever they may be).
People need stimulus, but what they need is fiscal discipline. Both of these must be placed under strict state control. Xi Jinping talks about shared prosperity to flatten wealth inequality, but we need a private sector that creates even greater inequality.
China needs private sector innovation and momentum while scaling back successful private entrepreneurs. Chinese industry relies on highly polluting coal energy when needed to reduce pollution.
As if this wasn’t enough, its population is declining at the fastest rate in human history. As the economy weakens, it continues to spend money on unproven military technology and risky cutting-edge technology. All of this indicates that more stumbling blocks and accidents due to Chinese characteristics are just around the corner. They will sink China further.
For precise focus, robotics and advanced technology can supplement human labor due to population decline. That could lead to increased production and manufacturing. However, this will not lead to increased consumption. Robots don’t consume. Humans do that too.