Is China Entering a Period of Economic Oblivion?

A view of a complex of unfinished apartment buildings in Xinzheng city in Zhengzhou, China's central Henan Province, on June 20, 2023. Pedro Pardo/AFP via Getty Images

Commentary

China observers such as Gordon Chang and yours truly have been aware of the unsustainability of the “China Miracle” for a couple of decades or more. However now, there are more red flags than ever about the Chinese Communist Party’s (CCP) ability to prevent the economy from a very hard landing.

Today, the most common narrative of China’s expanding role in the world is in the context of competition with the United States specifically and, more generally, the Western economies, which include the European Union, Japan, and South Korea. That narrative is a powerful one and is valid from almost every perspective.

The CCP itself, for instance, certainly views the United States as its primary adversary on almost every front—economically, militarily, technologically, and geopolitically. That’s true, at least for the time being. But neither time nor its state capitalist economic structure is on China’s side.

China Growing Too Old, Too Fast

One could point to many factors as the cause of China’s downward economic trend, but one is certainly the effect of its one-child policy, which began in 1979 and officially ended in 2015. China is paying a high price from this policy, despite the CCP’s encouragement for Chinese to have larger families. Today’s younger generation is far less interested in having multiple children, if any at all. Even marriage is becoming a thing of the past; 13.5 million couples got married in 2013, and only 6.8 million did in 2022.

As a result, China is suffering from a rapidly aging—and shrinking—population. The median age in China is 38, more than 25 percent older than the global median of about 30 years. This demographic double-edged sword is cutting China’s economic future off at the umbilical cord. By 2035, 30 percent of China’s population will be over the age of 60. That percentage will rise quickly given that, for the first time since 1961, deaths outpaced births.

China’s Labor-Based Economy Proving Disastrous

These demographic trends are not likely to be reversed, nor are their disastrous consequences, especially given the limitations of China’s labor-based economic model. This macroeconomic policy was implemented in the early 1980s by the CCP when it decided to open China up to Western direct capital, technological, and infrastructure investment.

In broad terms, China agreed to provide cheap labor to developed economies in exchange for Western investment in China. Essentially, the CCP was asking the developed world to do what it could not do in 30 years: develop China. Thereafter, manufacturing jobs flowed to China, quickly resulting in less expensive goods for the rest of the world, greater global consumption, and exploding profits for Western companies and Chinese manufacturers alike. As we all know, China grew rich and powerful from a huge shift in the manufacturing activity of the world moving to China.

Single-Party Rule Eventually Leaves No Room for New Ideas or Flexibility

China’s knowledge base grew, but not as much as it could have or should have. The problem is that educated labor is much more expensive and, as the Tiananmen Square pro-democracy protests aptly demonstrated in 1989, is dangerous to the CCP. Wealthy citizens demand more than just wealth; they want self-determination.

The deal the CCP struck with the people in the aftermath of the Tiananmen massacre of thousands of students was a simplistic and unsustainable one: The CCP would provide a growing economy in exchange for limited freedoms and no political challenges to the Party by the growing Chinese middle class.

As time passes, the unavoidable clash of such an arrangement becomes clearer. When the need to expand information flows and freedom of movement in order to sustain economic growth begins to threaten the power or even the very existence of the CCP, the interests of the Party will take precedence over the well-being of the people or the country.

The Japanification of China?

Admittedly, the economic histories and profiles of China and Japan are quite different. However, there are some key economic and demographic factors that the countries have in common. These factors include falling asset prices, economic demand, and aging and shrinking populations, which Japan has been experiencing since 1990. Japan continues to wrestle with a falling birthrate, declining domestic economic demand, and repeated periods of high public debt from failed stimulus policies.

China is now facing similar challenges. It has likely peaked as an economic actor in the world, as the European Union and the United States seek to scale back investment in China. And, as noted above, its demographic trends portend further economic decline. There are other factors to consider, but these are the most likely to push China into a lost decade (if not a lost generation) because demographics and consumer demand play such huge roles in long-term economic health.

At this point, there is no question that today, China faces significant economic and demographic obstacles that it hasn’t seen since the late 1970s, just before the West rescued the CCP from itself. But the time for the West to rescue the CCP has now passed. Widespread stagnation looms on the horizon in China, as does an extended political crackdown and the Party’s continued control over the economy. None of these leads to growth and innovation; they threaten to perpetuate stagnation.

But those are the prescriptive solutions offered by the sole leader of the CCP, Xi Jinping. The conflict between economic growth and the Party’s survival is in play, and the possibilities of economic growth in China are losing.

Essentially, the biggest threat to China, today and in the foreseeable future, is the CCP.

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