Xi Jinping secured third term to run the country by drumming up nationalistic sentiments, vowing to make China the most powerful country. However, the country appears to be losing steam on the economic front. China’s exports are declining, industrial output plummeting, and strict lockdowns affecting businesses while the country’s elites are leaving. Xi’s dreadful Covid management is adding to the economic problem. Moreover, with its international coercive policies, hostility toward Taiwan and other neighbours has made China less popular during Xi’s tenure.
China’s fiscal deficit has reached USD 980 billion thanks to market disruption due to Covid lockdowns, the housing crisis and massive tax rebates. Lisheng Wang, an economist at Goldman Sachs, said “China’s fiscal conditions have faced significant challenges since spring this year, from the sharp contraction in land sales, large-scale tax rebates and deferrals, and more spending on Covid controls.” Industrial profits fell by 2.1 per cent in the first nine months of 2022. Chinese firms are struggling with low demand and high costs.
China’s GDP growth for the third quarter was restricted to under 4 per cent, indicating an economic slowdown. Also, the economy does not seem to get revived in long term due to the severe Zero Covid policy. Julian Evans-Pritchard, senior China economist at Capital Economics, said “There is no prospect of China lifting its zero-COVID policy in the near future, and we don’t expect any meaningful relaxation before 2024.”[3]
The economy has ceased to become a priority area for Xi administration. It was reflected during the 20th Congress of the Chinese Communist Party. The Xi government delayed releasing economy data and the overall focus during the congress was seen shifted to politics, hyper-nationalism and military expansion.[4] Ting Lu, chief China economist at Nomura, said “The actual economic recovery momentum is not strong.”[5]
China must clock at least 5 per cent growth if it wants to displace the US from the rank one. However, poor productivity, weakening human resource power, and burgeoning debt have derailed China’s growth trajectory.[6] Interestingly, the Chinese economy grew by 7.7 per cent on average each year before the pandemic. There are concerns that China may not be able to reach 3 per cent annual growth now. The growth under 3 per cent however will have a major negative impact on China’s ambitions as an economic, diplomatic and military superpower.
The boost the Chinese economy received in recent years is slowly dying down, said Alex Brazier and Serena Jiang, economist at investment firm Blackrock. Highlighting negative growth of 1.1 percentage points in exports in 2022 and 2023, they said “Losing that huge growth driver will make maintaining overall economic growth quite the challenge.”[7] The Chinese economy has clocked to decent growth during the pandemic due to a sudden surge in demand from developed countries, which had to enforce strict lockdowns.
Now the situation is different and many Chinese factories are witnessing shutdowns due to Zero Covid policy-led disruptions. So the diminishing exports have created problems for China’s economy. Carlos Casanova, senior economist for Asia at UBP, said “The difference with 2020 is there is no tail wind on the export front. With risks of recessions crystallising in key markets in Europe and America, we don’t expect external demand will remain supportive.”
Xi did not face any challenge while securing the third term, which many saw it being a violation of the general understanding of the communist party-run system. However, there are strong under currents of opposition to Xi’s holding onto power, which may see as detrimental to the country’s interest. Like rats leaving a sinking ship, wealthy people from China are exiting the country as they are getting apprehensive about the country’s future under Xi. “Now that ‘the chairman’ is firmly in place . . . I have already received three ‘proceed’ instructions from various ultra-high net worth Chinese business families to execute their fire escape plans,” said David Lesperance, a Europe-based lawyer.
Xi has already downplayed the need for rapid economic growth and continued to pursue controversial policies such as Zero Covid. This kept lowering the confidence of investors. Thus, stock markets reacted negatively after Xi was reappointed for the third time. Hong Kong Hang Seng index fell by 6 per cent, which was an 11-year low. Investors are pessimistic due to the lack of clarity about economic measures by Beijing.