This year in the last week of January when sports persons around the world were preparing for their visit to Beijing to participate in the Winter Olympics–beginning from February 4, the international community’s attention was suddenly drawn towards an unusual development in China.

A senior official of the China Securities and Regulatory Commission (CSRC), which is the key economic regulatory body of the Middle Kingdom, held a virtual meeting with executives of top western banks and asset managers and assured them that Chinese economy was not in doldrums and that in 2022, the country would achieve respectable growth.

Those who are familiar with China and its economic activity, they must be in for a shock. Never has China, since 1978 when it opened its economy to the world, taken to convincing the bankers, businessmen or investors about its state of economic affairs.

Even in 2008 when the collapse of investment bank, Lehman Brothers, had pushed the American economy into recession and sparked a global economic crisis, China was registering massive growth, winning one after another economic goal post.

From 2008 to 2018, its average annual growth remained 9.5 per cent—a pace which was described by the World Bank as “the fastest sustained expansion by a major economy in history.”  

In particular, 2008 was the period when China had braved freezing rain and snow storm in its South and a devastating earthquake in Sichuan that led to the killing of 70,000 people and unrest in Tibet. In the face of these challenges, the Chinese economy was shining like the brightest star in the sky.

Therefore, when the CSRC held a meeting with top bankers and investors from the western countries, it was not taken well by experts and economists across the world. It reminded them of the warning of the Chinese Academy of Social Sciences (CASS), in December that the property downturn due to Evergrande crisis would weigh on the economic growth.

The CASS had predicted that China’s economy will grow about 5.3 per cent in 2022. However, when the CASS had made its prediction, it had not taken into account the effect of the anti-Coronavirus measures China has imposed in the large swath of the country as per its zero-Covid-19 policy.

Goldman Sachs has already cut its 2022 forecast for China’s economic growth to 4.3 per cent down from 4.8 per cent previously. “In the light of the latest Covid-19 developments—in particular, the likely higher average level of restriction to contain the more infectious Omicron variant—we are revising down our 2022 growth forecast to 4.3 per cent from 4.8 per cent previously,” Goldman Sachs Hui Shan and his team of analysts wrote in a report on January 11.

Nomura of Japan has also predicted 4.3 per cent growth for China’s economy in 2022.

These reports are not good for China-economically, politically and socially. There is an apprehension among Chinese authorities that if the economy continues to slide, the country will see piling of debt burden and widening of social inequality, which inter-alia will see a surge in tension.

According to The Economist, as of March 2020, China’s total domestic debt was 317 per cent of its GDP. The Chinese banks are plagued with more than US$50 trillion worth of bad debt. It has to be seen how Beijing makes its banks relax on their borrowings to bring life to the market.

For China, this is all happening at a time when at the end of 2022, the Chinese Communist Party is going to have its National Congress meet and President Xi Jinping will claim a third five-year term for himself. The Congress is likely to elevate President Xi Jinping is to a stature alongside the father of China’s Communist regime Mao Zedong and protagonist of the Middle Kingdom’s economic take off, Deng Xiaoping.

Therefore, at no cost, President Xi will like China to pass through economic challenges.

If the economic slump continues unabated   Xi Jinping’s leadership will be questioned within the CCP.

However, experts such as Thomas J Duesterberg are not optimistic about China’s economic recovery in the short term.

Duesterberg who is a senior fellow at Hudson Institute, a US-based prominent think-tank, says, “China growth will likely be weakened by a combination of increased control by the state, a focus on older population, less innovation, and the deliberate undermining of some of faster growing sectors.”

He further argues that there are structural problems that may impact China’s economic growth for a long term to come.

In this regard, Thomas J Duesterberg cites China’s demographic problem.

“Its population is about to start to decline or perhaps is already started to decline. It is severely aging, falling by over 15 per cent in the next 15 years. By 2050, it is estimated that about half a billion people (in China) will be over the age of 60 and require extensive support through the social welfare system,” opines the Hudson Institute’s senior fellow.

He also underlines unequal distribution of income–vertically and geographically as the reason why the Chinese economy will be unavoidably dogged by internecine social and political problems in days to come.

To this extent, Elizabeth C Economy of Stanford University’s Hoover Institution has a word of caution for the Chinese leadership.

A noted China scholar, she has warned that if rampant and severe urban-rural inequality on account of unequal distribution of income persists, China could be in for “social unrest.”

In the meantime, China has lowered mortgage lending to one-year and five-year tenor prime rates in order to prop up the slowing economy.

But whether such knee-jerk move will work up to the Chinese leadership’s expectations—is a major question that has no ready answers.(POREG)