By Christopher Tan (PZ’21)
“When China awakes, the world will tremble,” Napoleon once famously said. This statement has never rung truer as China faces an economic slowdown after 30 years of unprecedented growth, with global markets anxious about the trickle-down effects of the country’s sluggish economy. With official numbers from the last quarter of 2018 reporting a growth rate of 6.4 percent—China’s slowest since the onset of the 2008 financial crisis—Xi Jinping’s government is under pressure to respond to these growing concerns through policy.
To contain and confront the ensuing crisis, Xi’s government has aimed to implement a series of tax cuts for small businesses amidst various other measures to boost public spending. Xi’s presidency has navigated China through a plethora of domestic and international challenges with the country’s hegemony intact; current trends of falling consumer confidence, slowing growth, and trade woes, however, may present the toughest challenges yet for the Chinese leader.
In a rare admission of Beijing’s struggles to contain the crisis, Xi warned in a speech to hundreds of communist party officials that the country faced “profound and complicated” changes on the international and domestic stage. He advised that the country “be highly alert to ‘black swan’ incidents,” referring to unpredictable market events.
While Chinese citizens have grown accustomed to policymakers confidently boasting about the direction that the country’s buoyant economy was headed, recent issues have shifted the political language instead to tacit acknowledgments of the risks ahead. Additionally, Xi’s warnings about foreign risks come at a highly contentious time for Chinese diplomacy, with Beijing embroiled in a brewing trade dispute with the United States, a standoff with Canada over the extradition of a Huawei executive, and various spats with neighbors over boundaries in the South China Sea.
As exports comprise a major portion of China’s economic clout, diplomatic spats hurt Xi’s ability to market China’s pro-business image to court foreign investment. Trade uncertainty, precipitated by growing tensions with the United States, has begun to negatively affect China’s lucrative manufacturing industries; many businesses have shifted their supply chains to other Asian countries like Vietnam and Myanmar. This trend has been reflected in economic reports: as China’s economy slows, Vietnam’s and Myanmar’s have accelerated, with both standing amongst the fastest growing countries in the region this past year.
In order to stem the spread of the crisis and boost growth, Xi has introduced measures meant to expand public spending by slashing the central bank’s required reserve ratio while also cutting taxes. Investments in infrastructure development, as well as massive projects like railways, bridges, airports and a vast new city near Beijing, have also been implemented. In doing so, Xi’s government hopes to shift Beijing’s dependence on exports towards more sustainable domestic consumption. Such a shift, however, won’t come easy for an administration accustomed to navigating a global trade environment favorable towards Chinese economic expansion and clout. Xi’s efforts to advance the Chinese economy through public expenditures—an inclination that fuels the infrastructure investments—thus only contribute to growing concerns that China’s debt pile may further exacerbate its economic slowdown.
Adding to China’s woes are reports of dire employment numbers, a vital indicator of economic health for governments. A government survey of large industrial firms showed a decline in total employment by around 2.8 million people from 2017 to 2018. Many factories in China’s manufacturing hubs have also reportedly laid workers off. The increasing rate of unemployment has eroded consumer trust and given rise to fears of societal unrest, worrying policymakers in Beijing.
For Xi Jinping and his government, maintaining control over employment is critical to retaining trust from China’s population of more than a billion people. Widespread job losses amidst an economic slowdown could potentially lead to unrest, a nervy prospect for Xi. With 2019 marking the 30th anniversary of the Tiananmen Square protests, Xi’s government remains fearful of any news or events that may spark civil unrest and anti-government protests. As such, the government has taken measures to continue to filter news and content online, adopting increasingly advanced ways to monitor internet usage in the country.
The roots of China’s current economic issues stem from past policies. Historically, a young and growing workforce helped China expand its manufacturing sector and bring forth substantial economic growth. Now, however, its working-age population has begun to shrink, and the effects of China’s one-child policy is starting to bite. Additionally, as a result of substantial economic growth over recent decades, China’s wages and living costs have risen, pushing foreign firms to consider more affordable countries for investment like Vietnam. Thus, while China’s substantial economic success over the last two decades has allowed the government to consolidate more power over its people, economic woes and job loss may erode much of the public trust and support that had originally enabled the country’s economic achievements.
For now, Xi’s government appears to have the tools to calm anxieties in the short run. While China’s advances have slowed, increased government spending will allow its growth to remain sustainable, albeit at a more sluggish rate. However, what should worry Xi over the long-term is how his citizens would react should a recession ever kick in. With the Chinese government’s iron grip over all of its economic affairs, it will be clear to citizens who is to blame in that scenario.