The Chinese government seems to have fallen back in love with economic growth. As the chaotic exit from its “zero COVID” policy has unfolded — leading to tens of thousands of deaths (at least) — the nation’s leaders have been eager to profess their undying devotion to robust economic recovery.
However, lip service alone can get China nowhere.
Last month’s Central Economic Work Conference — the annual meeting where the top leadership of the Chinese Communist Party (CCP) sets the economic policy agenda for the next year — established growth as the government’s top economic priority for this year. In the weeks that followed, the public was treated to a spectacle not seen in years, as provincial governors fell over themselves to echo the CCP’s commitment to growth, and reassure jittery private investors and entrepreneurs.
The political motivation for this shift is obvious. The CCP hopes to restore public support, after popular frustration with draconian “zero COVID” restrictions gave way to dissatisfaction with the botched exit from the policy.
However, it can mean little unless the government translates its pro-growth rhetoric into action.
To some extent, it already has. From easing borrowing restrictions on “high-quality” property developers to supporting demand for housing, measures aimed at breathing new life into the beleaguered real-estate sector are high on the government’s agenda.
Such efforts are far from sufficient. As important as the property sector is to China’s GDP, a moderate real-estate rebound alone cannot drive a comprehensive economic recovery, let alone a return to rapid growth. Likewise, the government’s other short-term stimulus measures — such as monetary and fiscal expansion, including infrastructure investment — are likely to provide only a temporary boost.
China’s COVID-19 restrictions left deep scars on the economy. Before the pandemic, the country boasted 44 million micro and small enterprises, which accounted for about 98 percent of all registered businesses and about 80 percent of jobs outside the state sector. More than 90 million individuals were self-employed.
“Zero COVID” changed all that. Because lockdowns were not accompanied by direct financial assistance for micro and small firms, many were driven out of business, placing a serious drag on growth.
Geopolitical pressures — not least the tech war with the US — are compounding the impediments to Chinese growth. The US is more committed than ever to restricting Beijing’s access to semiconductors, and is applying diplomatic pressure on the Netherlands to block ASML from selling a wider range of its chip-production machines to China.
Additionally, the possibility of new US sanctions on China cannot be ruled out, especially now that the Republican Party controls the US House of Representatives.
Meanwhile, China’s implicit support for Russia’s war against Ukraine has soured its relations with its second-largest trading partner, the EU. Some in Europe are now following the US example and calling for an economic “decoupling.”
Already, many European companies are seeking to diversify their manufacturing supply chains — including by sourcing alternative inputs and shifting some production — to reduce their reliance on China.
As long as geopolitical tensions persist, the business climate remains uncertain, discouraging investment and reducing manufacturing employment as foreign companies exit the market. Finding ways to improve relations with the West is thus a prerequisite for economic recovery.
To be sure, the Sino-American relationship is probably beyond repair at this point. Nonetheless, China could improve the diplomatic atmosphere by limiting its support for Russian President Vladimir Putin, as well as its saber-rattling vis-a-vis Taiwan, thereby assuaging investors’ fears of a Chinese invasion or naval blockade of the nation.
At the same time, China must launch a credible reform program. Under Chinese President Xi Jinping’s (習近平) leadership, the government has embraced orthodox communist ideology and sought to increase the party’s dominance over society and the economy. This approach — exemplified by tighter social control, the establishment of CCP cells in private firms, and provocations against China’s most important trading partners — has severely damaged business confidence.
If the CCP is serious about growth, it must recommit to former Chinese leader Deng Xiaoping’s (鄧小平) most important political reforms, such as meritocracy, term limits and mandatory retirement of party leadership. Increasing the legal system’s independence is particularly urgent to reassure private entrepreneurs that their personal safety and property are protected.
In terms of economic policy, China must privatize inefficient state-owned enterprises and create a more business-friendly regulatory environment. Measures aimed at supporting small businesses are also essential to a lasting economic recovery.
Despite all the talk about growth, China’s government has not unveiled any such plans, and nothing in official government rhetoric indicates that a fundamental change of direction — like Deng’s decisive break with Maoist “class struggle” in 1979 — is being considered. So, do not believe the hype: China’s economy could sputter for a while yet.
Pei Minxin is a professor of government at Claremont McKenna College and a nonresident senior fellow at the German Marshall Fund of the US.
Copyright: Project Syndicate
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