It is widely anticipated that the Chinese President Xi Jinping, during his speech in the 20th National Congress of the Communist Party of China (CPC) would claim that Chinese economy has not only weathered the western sanctions but also the Covid-19 pandemic and successfully managed a reasonable growth. However, unlike the previous congress, this time around he has little to flaunt on the front of economy. In the first half of the year, China recorded only 2.5% growth over the past year, one of the lowest in three decades. Retail sales were 0.7% less in the first half than previous year after plunging 11% in April.
The Chinese economy is facing a severe downward pressure and a plethora of problems which do not appear to be surmountable in near and short terms. Some observers opine that ‘as a result of lockdowns due to the Corona virus, the zealous fight of the authorities against corruption and crisis in the real estate market, the economy of the Middle Kingdom may collapse.’ The conclusion has been made by the western media on the basis of assessment given by the World Bank. This may appear an exaggerated assessment, but the truth is that the Chinese economy’s slide is unprecedented and has come to stay for a while.
For the first time since 1990, China will be overtaken by emerging Asian States. Their economy will increase in 2022 by 5.3% while the Chinese economy will grow by 2.8%. As the slowdown comes amid preparations for the CPC Congress, Beijing is redefining the tasks for officials. The figure of 5-5.5%, which was planned earlier, is not mentioned. Employees are required to achieve maximum results.
China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. The World Bank monitoring indicates that the Chinese leadership has successfully contained the spread of the Corona Virus. But this has serious economic consequences, disruptions in industrial output affected services, domestic sales and exports. There were gaps in the
chains of logistics. World Bank has also pointed out decline in construction and sales of housing. Analysts see the Chinese government’s zero tolerance for Covid-19 as the main limiter of growth.
There is consensus among all the agencies about unprecedented downward shock in the Chinese economy. In its latest World Economic Outlook, the International Monetary Fund said. “In China, further lockdowns, and the deepening real estate crisis pushed growth down to 3.3% this year – the slowest in more than four decades, excluding the pandemic. Similarly the Wall Street Journal talks about the possibility of a collapse of the Chinese economy while Reuters predicts increased fluctuations and uncertainties. Even Chinese State Statistics Service data shows that in the first eight months of this year, the profits of the industrial enterprises fell by 2.1%. Bruce Pan, Chief Economist at Jones Lang Lasalie, says, “China’s economic recovery has been stalled by a series of surprises. These are extreme heat in the summer, power supply restrictions in the regions and outbreak of Covid-19.”
It is not only sliding growth, but there are other structural problems in the Chinese economy. According to Zhang Xiaojing, Director of the National Institution for Finance and Development, the overall leverage ratio – total debt as a percentage of Gross Domestic Product – is projected to increase by 11.3% points to around 275% this year, one of the worst in world. The ageing population of the country has also led to a mismatch between demand and supply of labour. Another problem that could mar its economic growth prospects in medium term is a transition from thermal power to greener energy. China has committed in its nationally determined goal for sustainable development under Paris Convention to drastically cut carbon emissions which seems unrealizable at present pace of transition.
Xi Jinping would thus find it very difficult to enhance legitimacy of the CPC by window dressing economic growth in the 20th National Congress, contrary to the previous CPC Congress meets. In his address at the opening ceremony of a study session of provincial and ministerial level officials in July while setting the agenda for the 20th CPC Congress, he had highlighted that the next five years will be a key period in China’s modernization drive, saying
that enabling growth during the period will be of critical importance for China to realize its second centenary goal – turning China into a great modern socialist nation by 2049. But the second centenary goal of China is now plagued by several unforeseen changes in geopolitics including Ukraine war and Taiwan issue in addition to many regional groupings aimed at containing China.
Wang Huiyao, President of the Center for China and Globalization and a Counselor with the State Council pertinently remarked, “the upcoming 20th Party Congress is set to attract global attention, as the world is eager to know how the world’s second largest economy will navigate through risks and challenges amid the lingering pandemic and geo-political tensions.”