China’s Economy: A Recurring Pattern of Defeat

Migrant workers standing near signs advertising their skills as they wait by a street to be hired in Shenyang, in northeastern China's Liaoning Province, on Feb. 26, 2023. STR/AFP via Getty Images

Commentary

If China’s economic prospects were not so ugly and dispiriting, the story would be boring. Like a series of B-movie sequels, the pattern has repeated since 2021, when the failure of the huge developer Evergrande inaugurated China’s long-lasting property crisis.

At each step, the economy has given off signs of weakness. Beijing has either ignored the problems or put forward inadequate or ill-conceived policies. These have failed as remedies, and the economy has given off still more signs of weakness, which has elicited different but still ineffective remedies followed by more signs of economic weakness.

It is getting hard to believe the pattern will ever break and save the poor Chinese wage earners and businesses that must cope with the mess.

The latest news from China confirms that the pattern persists. Through spring and early summer, Chinese authorities held a series of grand meetings of the sort that the Chinese Communist Party (CCP) seems to love. Each such meeting has announced new policies that are supposed to help China regain its economic momentum. Yet, as economic measures have rolled in, the message has been clear. The announced policies have failed to address the problems confronting Chinese economics, and the country still suffers from a loss of dynamism and growth prospects.

Thus, while all the CCP meetings confirmed Beijing’s already reduced 5 percent real growth target for 2024, every statistical and anecdotal measure says the economy is underperforming. According to Beijing’s National Bureau of Statistics, China’s real gross domestic product (GDP) for the spring quarter was 4.7 percent above year-ago levels. Unemployment ticked up in July to 5.2 percent of the nation’s workforce from 5.0 percent earlier in the year.

The People’s Bank of China (PBOC) reports a steep decline in bank and other forms of lending to 770 billion yuan (about $108 billion) in July, down from 3.3 trillion yuan (about $463 billion) in June. Some of this decline is seasonal, but not all. It is the fastest such contraction in two decades. It signals that households have little inclination to spend on consumer items or new homes and that Chinese businesses have a similar disinclination to spend on hiring.

Each major sector of China’s economy shows weakness in its own right. The greatest problem lies with housing. According to the latest reports, home sales by value fell almost 26 percent in July from year-ago levels. Most telling is how property prices have continued to decline, by 5.3 percent in July from year-ago levels, worse than the 4.9 percent recorded for June. This carnage has occurred despite Beijing’s recent effort to buy unoccupied apartments for more than 500 billion yuan (about $70 billion).

The drop in property values has hit consumption levels. For most Chinese, the value of their home constitutes the bulk of their household wealth. So, with real estate values in decline, Chinese people have felt even poorer and have governed their spending levels accordingly. In so doing, they have imposed a drag on the overall economy.

Beijing has tried to boost consumer spending with a program to buy up older household appliances and cars and thereby spur new sales, but it seems to have had little response. As of July, retail sales were only 2.7 percent above year-ago levels, well below the target for the overall economy and slower than the growth rates of earlier in the year and late last year.

Meanwhile, capital spending by businesses has also lagged. In 2023, the most recent period for which figures are available, capital spending by private businesses for expansion and modernization increased a mere 1.9 percent, much less than public spending and certainly less than China needs to meet its growth target. Such reluctance is easily explained by the sluggish and uncertain behavior of the overall economy, but there is more.

Not too long ago, CCP leader Xi Jinping unnerved business owners by castigating them for following profits instead of the CCP agenda. Now that China needs help from private businesses, Xi has changed his tune and has begun to praise business owners as “our own people.” His earlier remarks, however, have planted a seed of fear in these business owners that he might change his tune back to his old way of thinking. That fear has received a fillip of late because the authorities have announced plans to give themselves a big role in how private businesses spend. Needless to say, private businesses have hesitated to put more at risk.

Exports, too, have lagged. Growth in the rest of Asia has boosted overall figures, but the all-important sales in the West and Japan are far from encouraging. Governments in Washington, Brussels, and Tokyo have shown varying degrees of hostility toward China trade, placing tariffs and other restrictions on the movement of goods. Washington has been most forceful in this regard, but it is not alone. More than government hostility, businesses in the West and Japan are determined to diversify their sourcing away from China. Shipments of goods from China to the United States, Europe, and Japan are all down from year-ago levels.

Last year, Beijing launched an investment program in high technology, especially electric vehicles (EVs) batteries, computer chips, and green energy. In part, Beijing did so to make up for the deficiencies in homebuying, consumer spending, and capital spending by private businesses. All that effort has done is create excess capacity in the targeted areas and distorted the Chinese economy to produce in areas that neither the Chinese nor the rest of the world wants from China. Nothing in this picture—either the state-backed programs or the results—is pretty. The pattern seems set to replicate itself going into the future, as it has for some time now.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.