Xi Jinping’s new leadership team is now in place. It is the direct image of Xi Jinping, and will support the same policies – more political and societal controls, less liberalism, more hegemony.
With that stewardship, China’s GDP will slow, if not stop altogether, after decades of an ‘economic miracle’.
China’s recent trends
Economic growth relies on the combination of multiple factors. Investments, population growth and productivity growth are all problematic.
- After decades of 1-child policy, China’s population is now older and stagnating. It will enter a period of decline and further aging:
- The UN forsees a significant reduction in the working age population:
- China’s productivity has slown down already:
This productivity will actually decline further, as its main sources, infrastructure investments and a technological boom, are meeting severe difficulties, on top of the country’s strict COVID policies.
Large infrastructure investments were the main source of growth. Unfortunately, the country is now well-equiped and new investments lead to less growth. $1 of growth could be achieved with $4 of investments during 1991-2007. In 2019, it now needs $8.
Worse, the country is now loaded with debt:
- A country’s GDP/inhabitant always reduces once reaching $12,500. China has now reached that level and a 2.5% growth going forward would make China an outlier, statistically speaking.
- Worse, of the 19 countries that have passed that threshhold, none ever had that much debt. On average, their debt level was 170% of GDP. China’s debt reached 220% before the 2008 crisis, and growth effectively reduced (albeit from 10% to 6%).
- The country’s debt balooned to 220% in 2015, thanks to heavy real estate projects and a tech sector boom.
- The debt is now at 275% of GDP, and the real estate / infrastructure sector has turned into a bursting bubble – most of the projects were useless.
China has cracked down on its technological sector for political, opinion and population control reasons. The Western world has not appreciated China’s aggressive acquisitions of foreign technological companies, nor its spying activities. Europe and the US are now fighting these trends. Added to this, the US’s new restrictions on technological access will have a significant and long-term effect on the sector, by disconnecting China from the West’s innovations. That single effect could reduce China’s GDP by 6-8 % by 2050. China’s tech sector is unlikely to ever sustain its past growth.
So where will the productivity growth come from? Cricket.
With the depreciation of the Yuan, the Chinese economy has already reduced in US dollar terms.
Even at an unlikely growth rate of 2.5% (vs. the US at 1.5%), it is unlikely that China’s GDP will reach that of the US by 2060, if ever.
- Financial Times, October 24, 2022, China’s economy will not overtake the US until 2060, if ever
- CNN, October 30, 2022, Last look: Xi’s economic blunders
- Lowy Instititute, Revising down the rise of China | Lowy Institute