China’s economy has been growing steadily since it first began its recovery from the disastrous Cultural Revolution (1996-1967), bolstering its production and labor markets by transplanting poor, rural citizens into densely populated urban centers. To keep the cost of living and thus labor low, the centralized government reinvested much of the populous’ wages into bonds and other investments. However, China’s structured state-capitalist economy has recently hit a wall.
Credit: East Asia Forum
Much of China’s growth actually came from its real estate market, which was absolutely massive in its sprawling cities. It took up over 30% of China’s economy. Two years ago, the government (Chinese Communist Party) began to limit how much real estate developers could borrow. Now that all-important market is starting to crash. Similarly, China has become overdeveloped. To spur growth, the government invested heavily into public infrastructure, much of which is now empty and unused.
That’s only one problem of many.
Though nothing in the Chinese economy is bigger than the real estate market, the real problem is a matter of maladaptive policy. China is still behaving like the developing nation it was after Mao, the founder of the CCP, and expecting astronomical growth in excesses of 5% every year and investing directly into particular industries that better fit the needs of a nation transitioning from mass agriculture to mass manufacturing.
The presence of the uber-wealthy and the general success of the Chinese economy has created conditions conducive to the kind of high-skill and high-pay jobs characteristic of G7 nations, but without the personnel to fill them. Meanwhile, China’s high-pressure university system has sparked the Tang Ping (‘lie flat’) movement, in which young people pursue low-pay and low-skill work or don’t work at all, feeling there is no purpose in the economic rat race or the 72-hour work week. The current economic crisis only validates their feelings.
The downturn is also scaring China’s middle class, which grew from 3% in 2000 to more than 50% in 2018, into hoarding much of its cash.This is halting the growth of other sectors that might have otherwise compensated for the failure of the real estate market. China is trying to reinvest in alternate forms of industrialization such as electric vehicles.
The future of China’s economy is deeply uncertain. It has definitely encountered major difficulties and is currently spiraling, but China should not to be counted out of the fight just yet. Still, the rest of the world has been left reeling. US officials might be breathing a sigh of relief, after years of fearing China surpassing the US, but there’s a catch. The US buys the majority of its cheap goods in China, including, as we learned over the pandemic, face masks. When Chinese manufacturing slows down, what happens to the US? What happens to us?
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