What is happening? / Co se děje?
China is in trouble. The country we used to associate with a vibrant and speeding economy – currently the world’s second-largest – for the last few decades is now challenged by an unprecedented economic downgrade. While some see it as an opportunity, with its global ties and dependencies, others perceive the situation as a “ticking bomb.” Concurrently, China is facing extremely high unemployment rates among its youth. The situation is so severe that officials recently stopped publishing unemployment data, attracting international media’s attention.
What is the broader picture?
Contrasting the reform and opening up (改革開放, gaige kaifang) strategy under Deng Xiaoping (鄧小平), China under Xi Jinping (習近平) is becoming increasingly closed to the outside world. The coronavirus disease pandemic, to which Beijing responded with a strict zero-COVID policy, was an excellent opportunity for the CCP to test its tools for total social control. Despite severe local protests and economic losses, the CCP handled it. Not only has China closed itself physically, but it has also shut down many information channels. It is steadily more difficult to obtain reliable information from China, and in many sectors, we depend only on official data.
Recently, the Chinese yuan fell to its lowest level in 16 years. Morgan Stanley and other major banks cut China’s 2023 economic growth forecast below five percent. China’s production and import have slowed down, the domestic real estate crisis is deepening, and unemployment among youth has gotten so severe the government has stopped publishing related data.
Of course, it is not the first time economic problems challenge China, but according to the observers, this time it is different. This slowdown is characterized by an imbalance between consumption and investment which is even deeper than 1990’s stagnation in Japan.
Why it matters? / Proč je to důležité?
For some, the Chinese economic slowdown means an opportunity. India, Vietnam, and South Korea look forward to substituting for some of the global demand and attracting foreign investment. However, despite the growing push to diversify away from and lower the dependency on Beijing, the Chinese market remains highly interconnected with the rest of the world, and its degradation will affect global markets.
Secondly, it needs to be clarified how the economic crisis and other domestic issues will squeeze the state. Some indicators show that Xi’s rule has not been stable, and he does not trust comrades in the top positions within the party and the army. The question of what happened to the former foreign minister Qin Gang (秦剛) has yet to be answered. Just a week after he had been disappeared, Xi replaced two top figures in leadership of the PLA Rocket Force, the military branch overseeing the nation’s nuclear and ballistic missiles. Interestingly, the new two appointees are outside the branch with no previous experience in rocket force. Wang Houbin (王厚斌) comes from the navy, and Xu Xisheng (徐西盛) from the airforce.
As Joe Biden said: “They have got some problems. That’s not good because when bad folks have problems, they do bad things.”