Political stability comes before everything

How healthy is the Chinese economy? The country is struggling with outbreaks of the corona variants Omikron and Delta in more and more places, the crisis surrounding real estate giant Evergrande is far from over and Chinese President Xi Jinping’s pursuit of a more egalitarian society has boosted the market value of large Chinese companies such as Alibaba. evaporate.

And yet: if you only look at economic growth, nothing seems to be wrong. Growth was enviably high in 2021 at about 8 percent. Chinese exports also flourished in that year as never before: they grew by almost a third compared to 2020. The trade balance surplus even reached a new record in 2021 at $ 676 billion.

Still, there are plenty of reasons for concern.

First, there is corona. China is struggling with outbreaks of both the Delta and Omikron variants in more and more places. This concerns a very limited number of infections by European standards: more than a hundred in the eastern Chinese port city of Tianjin, slightly more than two thousand in the western Chinese Xi’an and less than twenty in the southern Chinese Shenzhen, for example.

But the economic impact of those small outbreaks is significant. Although nearly 90 percent of the population is now vaccinated, Chinese vaccines provide poor protection against Omikron, according to recent research. That is why the government is constantly intervening, which hinders economic growth.

China has gradually become an internationally isolated fortress. It is becoming increasingly difficult to enter the country and there are more and more lockdowns in more and more parts of the country.

For example, the Chinese port city of Tianjin, with 14 million inhabitants, has been almost completely cut off from the outside world since Wednesday. All flights and high-speed trains had already been canceled before, and now cars, taxis and buses are no longer allowed to leave the city. And that for a total of only 126 corona cases that had been counted in Tianjin until Wednesday.

The government is extra alert because the disease must absolutely not reach the capital Beijing. The Winter Olympics will start there on February 4.

The restrictive measures affect production. For example, Volkswagen had to close two of its Tianjin factories on Thursday because the entire staff had to be tested for Covid. It is not yet clear when the factories will be allowed to open again.

There is a good chance that lockdowns will have more of an impact on the production and transportation of goods in China in the future. Both exports and the economy as a whole are expected to grow less rapidly in 2022 than in 2021, also due to a leveling off in demand from abroad.

Twentieth Party Congress

It is unlikely that the measures will finally be relaxed after the Games. The 20th Party Congress of the Communist Party of China (CPC) will be held in October, a more important event for China than the Games. There, Xi Jinping is likely to be reappointed for a third term as party chairman, and that is where the political cards for the party elite for the future are shaken. Until then, Xi will put domestic stability first.

The idea that if some people can get rich quickly, society as a whole will benefit from it is out of fashion

Nobody knows exactly what the extremely strict corona policy will cost China. The Chinese state media does not investigate that question. The message in the media, which is repeated endlessly, is that the measures are necessary in any case to protect the population, no matter how high the price.

In addition to corona, China is struggling with another economic headache: the crisis in the real estate sector. More and more real estate companies are being dragged into this, and more and more often local governments are more or less forced to pay for the phasing out of projects for which the real estate companies no longer have the money.

Local governments are heavily dependent on the sale of land for their income, but that very sale has come to a slump. By 2021, land sales in 13 of China’s 31 provinces fell by more than 20 percent.

The Evergrande crisis was partly created by the central government. It no longer allowed real estate companies to finance their projects by taking on irresponsibly high debts. That has to do with a much broader political change of course. The idea that if some people can get rich quickly, society as a whole will benefit, is no longer fashionable. Xi is betting on what he calls “shared wealth”.

State-owned companies play an increasing role in achieving this, while private companies have to give up power and autonomy. But it is precisely the private companies that are the strong growth engine for the Chinese economy, not the state-owned companies. Nevertheless, the Chinese government will not want to reverse all those factors that slow down economic growth in 2022: the risks are too great for that. This is the year Xi Jinping wants his term in office extended for at least five years, so political stability will take precedence over economic growth, especially this year.

Political stability comes before everything
Source link Political stability comes before everything

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