The Chinese economy is facing significant difficulties, and among the limited options available, there are only two paths to recovery. The first would be a complete reintegration into the global system. The second option would be to stimulate the real estate sector in the short term to prevent an immediate collapse while looking for alternative solutions. Unfortunately, both options have either been rejected by China’s leader Xi Jinping or present significant challenges.
Integration into the global system has been a key driver of China’s remarkable economic growth over the past four decades. China’s economic foundation rests on three pillars: investment, consumption and exports. But the first two pillars, investment and consumption, have proven problematic. The Chinese economy relies heavily on real estate and government infrastructure projects, but the real estate market is a fragile bubble, unable to support a robust economy despite temporary growth. Infrastructure investments to increase GDP face similar problems, making investments also an unreliable basis.
The second pillar, consumption, has its own problems. China’s consumer base remains weak due to significant wealth inequality; A small group of wealthy individuals live alongside the majority of much poorer citizens, and their spending alone cannot support the entire economy.
The real power of the Chinese economy is its manufacturing exports. China’s status as a “world factory” allows it to generate real profits, and these exports form the bedrock of China’s economic foundation. China’s cooperation with the developed West has led to significant advances in science, technology and business processes.
If China can rebuild this foothold, there is potential for economic recovery.
And yet the path to reintegration seems to be narrowing, if not completely closed. There are rising labor costs and geopolitical factors, and Xi Jinping’s stance suggests he is increasingly abandoning the goal of integration. Xi’s absence from the recent G20 summit in India spoke volumes about his reluctance to engage with the leaders of the world’s richest and most influential countries.
In fact, Xi has only managed it so far three trips abroad, all in countries friendly to Beijing. This is a significant departure from its pre-COVID-19 practice, which called for at least 10 trips per year.
This reluctance is likely due to domestic political pressures, China’s economic challenges and strained relations with India. But whatever the reason, this is not an effective approach if China wants to rejoin the international system.
The outcome of US Commerce Secretary Gina Raimondo’s recent visit to China remains uncertain. Although Raimondo addressed the interdependence between the U.S. and Chinese economies, unshakable restrictions Restrictions on exports of high-end chips to China caused by national security concerns point to ongoing tensions. Beijing is aware that U.S.-China relations are unlikely to return to their previous state, when the U.S. provided market access, financing, technology and management training, all of which were crucial to China’s current economy.
China’s most compelling argument to the West at the moment is that China’s economic problems, if not mitigated, will harm the global economy, including the US and the West.
And China is right: it is in the West’s best interest to help China avoid collapse. The Western world has a vested interest in ensuring the stability of the Chinese economy. As Raimondo put it in one News Hour Interview: “We do about $700 billion worth of trade with China every year, supporting hundreds of thousands of jobs in America. So anything we can do in trade with China to create jobs in America or help U.S. companies grow and innovate is a…”good thing.”
Despite this deep interdependence and China’s urgent need for Western support, Xi Jinping appears to favor coercion rather than diplomatic efforts to achieve his goals. China defies the “guardrails” in its relations with the US, denying and allowing regular military communications difficult for Western diplomats to reach Chinese officials. This is a dysfunctional approach that closes the door on reconnection with the West.
As China’s hopes for reintegration fade, the real estate market is intensifying Stimulus measures have arisen. These policies include, but are not limited to, reduced mortgage down payments and significantly lower interest rates Removal of purchase restrictions in many cities. These measures temporarily strengthened the real estate sector, prevented an economic collapse and bought time to find alternatives. Have shares in Chinese real estate companies increased In response.
But this is a short-term solution at best. According to the Chinese mediaThere are enough houses in China to accommodate three billion people – but the population is declining. Finding a replacement for real estate and exports amid Western technology sanctions poses a daunting challenge for China’s future.
Ms. Gao is a journalist and host of Zooming In with Simone Gao.
The views expressed in this article are the author’s own.