China’s vast food reserves prove to be the Communist Party’s secret weapon against inflation. They were created to ensure a steady supply of food in the event of crop failures, and that is precisely the function they currently perform after the record drought. But by allowing state planners to keep supplies high in times of crisis, they also curb price fluctuations, analyzes Ning Wang. China has the world’s largest food stockpiles including wheat and pork.
However, if the world continues to experience extremely dry weather year after year, then even the high reserves will no longer be of any use at some point. At the height of the Covid pandemic, President Xi Jinping already proposed a solution: China’s citizens should eat less. Those who waste food will be fined. In case of doubt, however, China will once again buy on the world market – and drive up prices in other regions.
Meanwhile, visionaries of the so-called metaverse are designing a brave new world of a different kind. The term describes a virtual reality in which we humans lead a second life in digital space in the form of avatars. Once it is finalized, the Metaverse will primarily be a new economic space. Companies and individuals will be able to invest, buy, sell and earn money for services here. That China will also follow its own approach here seems likely. The gaming and social media giant Tencent in particular has the know-how to create its own parallel online world. The company from Shenzhen will probably set standards early on, reports Frank Sieren. However, unlike in the past, Beijing will know how to undermine monopolies at an early stage. China is already setting narrow limits for the digital space of tomorrow.
Heat waves have been plaguing large parts of China for weeks. Temperatures climbed to 44 degrees Celsius on several days (China.Table reported). While the heat is expected to gradually ease in some regions by the end of August, farmers in many provinces are in despair. The drought is raising concerns about crop damages or even whole crop failures. “Autumn grain output accounts for three-quarters of the total annual grain output,” Vice Premier Hu Chunhua said, joining a chain of official voices that openly warn about the impending consequences of the climate: How can food shortages be prevented?
As recently as mid-August, Liu Weiping, China’s vice minister of water resources, warned, “Rice and other autumn crops were now at a critical period when it comes to irrigation.” The low levels of the Yangtze River (China.Table reported) damaged more than 800,000 hectares of farmland in the Yangtze basin, according to Liu. More than 800,000 people in the region struggle to access clean water.
Damage to crops and water scarcity could “spread to other food-related sectors, resulting in a substantial price increase or a food crisis in the most severe case”, said Lin Zhong, a professor at City University of Hong Kong who has studied the impact of climate change on agriculture in China. Experts expect China to buy even more food on the global market to increase its stockpiles and meet its supply targets set by the political leadership.
President and party leader Xi Jinping addressed the issue of self-sufficiency in a keynote speech: “In the future, the demand for food will continue to increase, and the balance between supply and demand will become tighter and tighter,” he said in a speech published in the Party magazine Qiushi in late March. Hu Chunhua, Xi Jinping and Liu Weiping were born in 1963 and 1953, respectively, so they were born well within reach of the 1950s famine. Mao Zedong’s “Great Leap Forward” campaign was intended to boost steel and agricultural production. It led to the biggest crop failures in recent history. Such trauma has long-lasting effects.
The “Great Leap Forward” was also the beginning of China’s dependence on imports. According to Scott Rozelle, a development economist at Stanford University, China’s dependence on food imports stands at around ten percent. Compared to the high import dependency of neighboring Japan, this is a rather low number. However, the USA and the EU, as well as Canada and Australia, have surpluses and do not see their supply security at risk for the time being, even in the face of crises.
The investment bank Goldman Sachs recently informed investors that six provinces accounted for half of the country’s rice production last year. All six are now particularly affected by the drought. These are Sichuan, Chongqing, Hubei, Henan, Jiangxi and Anhui.
Most recently, the winter wheat crop was in short supply in the spring due to a crop failure (China.Table reported). In 2021, heavy rainfall caused floods in the affected areas, and planting seeds had to be postponed. The shortages in the country were then offset by sourcing on the world market. This, in turn, contributes to the price hikes that now fuel inflation in wealthy countries and leave poor countries struggling to make ends meet.
However, China’s government is massively hoarding a whole range of staple foods. For example, the People’s Republic now stores about 50 percent of global wheat stocks, and as much as 70 percent of corn (China.Table reported). As recently as mid-August, China Enterprise United Grain Reserve Ltd. Company 中企联合粮食储备有限公司 was formed from a merger of Sinograin and COFCO, one of the largest state-owned food processing holding companies, “to manage China’s national grain reserve,” according to a recent report by the Beijing-based German-Chinese Agricultural Center.
The details of the state reserves are probably one of the Communist Party’s best-kept secrets. Not even their location is usually revealed, presumably to protect them from looting. Michaela Boehme, an agricultural and food expert and China analyst at the German-Chinese Agricultural Center in Beijing, has collected what little information is available in a paper.
China operates several food reserve systems, according to Boehme’s report. Provinces are required to hold minimum levels of the following commodities:
The provinces are supposed to dump these goods on the market when prices rise to balance out fluctuations for consumers. “These reserves are released through an auction system when the availability of grains and oilseeds on the domestic market decreases after the harvest,” Boehme explains the structures of the national food reserves in her report.
Strategic pork reserves are also held to offset import dependence. Reserves for both live pigs and frozen pork have been maintained since 2007. When African swine fever (ASF) hit in 2019, pork prices rose by more than 110 percent in some cases, as the People’s Republic had to cull up to 40 percent of its pig livestock. At the time, that was equivalent to about one-fifth of the global pig population.
China’s growing food stocks are drawing criticism from other countries. After all, they exacerbate global shortages. Meanwhile, China remains largely unaffected by inflation. One reason for this is the government’s food stockpiles. By opening up its reserves, Beijing also controls prices on the market and thus curbs price inflation (China.Table reported).
But there are first indications that this is no longer enough in light of failed harvests. At the height of the pandemic in the summer of 2020, State and Party leader Xi Jinping urged citizens to restrain their food consumption (China.Table reported). “It is necessary to further enhance public awareness, effectively cultivate thrifty habits and foster a social environment where wasting is shameful and thriftiness is applaudable,” was the motto of the campaign personally proclaimed by Xi.
But the people of China need not worry about hunger in the foreseeable future. It is a core goal of the Party never to repeat the disasters of the Mao era. The reserves are high, and the country’s financial strength is gargantuan. It could also tap the global market at prices several times higher than current levels to feed its own population. Still, to ensure a stable food supply, the country needs to quickly adapt to the new conditions of climate change.
Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and business activities in the People’s Republic.
The Party congress in Beijing is still 47 days away, but the political leadership does not want to take any chances and has once again tightened the Covid measures in the country. In the province of Hebei, bordering the 22-million-metropolis Beijing, about four million people have to stay in quarantine from Tuesday evening until the end of the week.
In the port city of Tianjin, more than 13 million people had to line up for PCR testing. Previously, 80 Covid cases had been reported in the city. Also in the port city of Dalian, in the northeast, the main districts for about three million residents were sealed off and quarantined until Sunday, according to Reuters. In the tech metropolis of Shenzhen, some stores were forced to close on Tuesday evening local time on orders of authorities. At last count, new infections were reported in more than 20 provinces. Government advisers believe the number of infections could rise to 10,000 a day this week.
Experts warn of the consequences for global supply chains: According to the Kiel Institute for Economic Research (IfW), municipal lockdowns are already exacerbating bottlenecks along global supply chains. However, the current measures in Shenzhen and other cities are not yet comparable to the drastic lockdown in Shanghai last spring. “However, if COVID-19 cases continue to rise, a hard lockdown, especially in and around Shenzhen, could weigh on supply chains and the Christmas shopping season,” warned IfW trade expert Vincent Stamer. “Because the province of Guangdong around the metropolises of Guangzhou and Shenzhen on the Pearl River Delta is the strongest export province in China. Many consumer goods for the German market are also manufactured there.” niw/rtr
An article published on the German news portal Spiegel Online raises hopes for supplies of liquefied natural gas (LNG) from China. However, the report is based solely on an article in the British newspaper Financial Times (FT), which in turn draws on a report in the Japanese business newspaper Nikkei, to whose publishing group the FT also belongs. And the Nikkei report is also founded on very little new information.
China could ship LNG to Europe from its own well-stocked reserves this winter. Nikkei cites an anonymous source at the Chinese commodity trading house Jovo Group in Guangzhou as the main evidence of this. The latter reports having already sold “one shipment” to an EU buyer. Oil and gas producer Sinopec also officially reported selling excess LNG stocks to the global market.
However, the possible resale of Russian gas and oil by China has caused debates since the beginning of the war (China.Table reported), without any concrete ideas so far. Russia sells a large share of what no longer goes to Europe at a discount to China, India and other loyal buyers. In theory, nothing stands in the way of resale: Russia cannot dictate to China how it uses the LNG. However, there are significant bottlenecks in practice:
So while Chinese LNG deliveries are highly welcome in Europe and will ultimately happen, they will probably not be a decisive factor in overcoming the current acute energy crisis in Germany. fin
Since the days of Deng Xiaoping, economic growth has mattered more than anything for China’s leaders. The 10 percent annualized hyper-growth from 1980 to 2010 was widely seen as the antidote to the relative stasis of the Mao era, when the economy grew by only about 6 percent. But under President Xi Jinping, the pendulum has swung back, with 6.6 percent average growth from 2013 to 2021 much closer to the trajectory under Mao than under Deng.
Some of the slowdown was inevitable, partly reflecting the law of large numbers: Small economies are better able to sustain rapid growth rates. As China’s economy grew – from 2 percent of world GDP in 1980 at the time of the Deng takeoff to 15 percent when Xi assumed power in 2012 – an arithmetic slowdown became only a matter of time. The surprise was that it took so long to occur.
It is possible to quantify the foregone Chinese output from the slowdown. Had annual real GDP growth remained on the 10 percent trajectory under Xi, rather than slowing by nearly 3.5 percentage points since 2012, the Chinese economy today would be a little more than 40 percent larger than it is.
Yet the China slowdown is far more than an arithmetic event. Three powerful forces are also at work – a structural transformation of the economy, payback for past excesses, and a profound shift in the ideological underpinnings of Chinese governance.
The structural explanation puts an optimistic spin on the slowdown by framing it as the byproduct of a strategy aimed to improve the quality of economic growth. By staying the course of hyper-growth for too long, China became increasingly afflicted with the “four uns” of former Premier Wen Jiabao – an economy that was unstable, unbalanced, uncoordinated, and (ultimately) unsustainable. Rebalancing was the only way out – especially if it led to greener, consumer-led, and services-intensive growth that addressed the twin goals of balance and sustainability. If slower growth was the price, it was well worth paying it.
For a while, the structural slowdown appeared to be on track. Services-led growth boosted job creation and urbanization provided a powerful impetus to real incomes. Even though consumption was still lagging due to a weak social safety net that spawned excess precautionary saving, there was good reason to believe in the likelihood of a structural transformation. But the case for a structural slowdown was not without its downside – especially a worrisome weakening in Chinese total factor productivity growth, as well as stiff demographic headwinds from the one-child family-planning policy in effect between 1980 and 2015.
But there is good reason to believe that China’s slowdown may also be more of an unavoidable payback for the excesses of the hyper-growth era. This line of reasoning was, in fact, telegraphed in 2016 by a high-profile interview with an “authoritative person” published on the front page of the Communist Party’s organ, People’s Daily, which warned of the potential Japanization of an increasingly debt-intensive, bubble-supported Chinese economy. An overly leveraged Chinese property sector fits this script, as does the debt-fueled expansion of state-owned enterprises since the 2008-09 global financial crisis. For China, this became the case for deleveraging, well worth the short-term price to avoid the longer-term stagnation of Japan-like lost decades.
Finally, a major reversal in the ideological underpinnings of governance is also at play. As the revolutionary founder of a new Chinese state, Mao emphasized ideology over development. For Deng and his successors, it was the opposite: De-emphasis of ideology was viewed as necessary to boost economic growth through market-based “reform and opening up”.
Then came Xi. Initially, there was hope that his so-called “Third Plenum Reforms” of 2013 would usher in a new era of strong economic performance. But the new ideological campaigns carried out under the general rubric of Xi Jinping Thought, including a regulatory clampdown on once-dynamic Internet platform companies and associated restrictions on online gaming, music, and private tutoring, as well as a zero-COVID policy that has led to never-ending lockdowns, have all but dashed those hopes.
Equally important has been Xi’s fixation on national rejuvenation, an outgrowth of his so-called Chinese Dream that has led to a far more muscular Chinese foreign policy, in sharp contrast to Deng’s more passive “hide and bide” stance. Not by coincidence, this has fueled the trade and tech wars with the United States, given rise to China’s “unlimited partnership” with Russia, and stoked tension over Taiwan – all of which point to the unwinding of globalization, which had long benefited China more than any other country.
My mistake was to give China too much credit for devising a structural antidote to Wen’s “four uns.” That led me to place too much weight on the benign forces of rebalancing as a rationale for higher quality economic growth. I worried a lot about Japanization risks, but mainly as symptoms of a failed rebalancing. That led me to double down on rebalancing, arguing that structural transformation was China’s only real option.
My biggest mistake was to minimize the consequences of Xi Jinping Thought. Xi’s focus on ideology speaks much more to the resurrection of Mao’s legacy than to continuity with the Deng era. Under Xi, China’s new era is more about the supremacy of the Party, with an associated emphasis on power, control, and ideological constraints on the economy.
Unlike the China of Mao, when there wasn’t much growth to sacrifice, there is far more at stake today for the world’s second-largest economy. With the upcoming 20th Party Congress likely to usher in an unprecedented third five-year term for Xi, there is good reason to believe that China’s growth sacrifice has only just begun.
Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of the forthcoming Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, November 2022).
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
This gentleman once again receives an explicit warning from the authorities: Torrential rains and flash floods are forecast for Chongqing. In the meantime, Germany has also learned how dangerous floods caused by climate change can be. Especially if, like this resident of the western Chinese metropolis, you do not live in a properly reinforced house. He has built his hut under an elevated highway. Here, he is preparing his breakfast.
China’s vast food reserves prove to be the Communist Party’s secret weapon against inflation. They were created to ensure a steady supply of food in the event of crop failures, and that is precisely the function they currently perform after the record drought. But by allowing state planners to keep supplies high in times of crisis, they also curb price fluctuations, analyzes Ning Wang. China has the world’s largest food stockpiles including wheat and pork.
However, if the world continues to experience extremely dry weather year after year, then even the high reserves will no longer be of any use at some point. At the height of the Covid pandemic, President Xi Jinping already proposed a solution: China’s citizens should eat less. Those who waste food will be fined. In case of doubt, however, China will once again buy on the world market – and drive up prices in other regions.
Meanwhile, visionaries of the so-called metaverse are designing a brave new world of a different kind. The term describes a virtual reality in which we humans lead a second life in digital space in the form of avatars. Once it is finalized, the Metaverse will primarily be a new economic space. Companies and individuals will be able to invest, buy, sell and earn money for services here. That China will also follow its own approach here seems likely. The gaming and social media giant Tencent in particular has the know-how to create its own parallel online world. The company from Shenzhen will probably set standards early on, reports Frank Sieren. However, unlike in the past, Beijing will know how to undermine monopolies at an early stage. China is already setting narrow limits for the digital space of tomorrow.
Heat waves have been plaguing large parts of China for weeks. Temperatures climbed to 44 degrees Celsius on several days (China.Table reported). While the heat is expected to gradually ease in some regions by the end of August, farmers in many provinces are in despair. The drought is raising concerns about crop damages or even whole crop failures. “Autumn grain output accounts for three-quarters of the total annual grain output,” Vice Premier Hu Chunhua said, joining a chain of official voices that openly warn about the impending consequences of the climate: How can food shortages be prevented?
As recently as mid-August, Liu Weiping, China’s vice minister of water resources, warned, “Rice and other autumn crops were now at a critical period when it comes to irrigation.” The low levels of the Yangtze River (China.Table reported) damaged more than 800,000 hectares of farmland in the Yangtze basin, according to Liu. More than 800,000 people in the region struggle to access clean water.
Damage to crops and water scarcity could “spread to other food-related sectors, resulting in a substantial price increase or a food crisis in the most severe case”, said Lin Zhong, a professor at City University of Hong Kong who has studied the impact of climate change on agriculture in China. Experts expect China to buy even more food on the global market to increase its stockpiles and meet its supply targets set by the political leadership.
President and party leader Xi Jinping addressed the issue of self-sufficiency in a keynote speech: “In the future, the demand for food will continue to increase, and the balance between supply and demand will become tighter and tighter,” he said in a speech published in the Party magazine Qiushi in late March. Hu Chunhua, Xi Jinping and Liu Weiping were born in 1963 and 1953, respectively, so they were born well within reach of the 1950s famine. Mao Zedong’s “Great Leap Forward” campaign was intended to boost steel and agricultural production. It led to the biggest crop failures in recent history. Such trauma has long-lasting effects.
The “Great Leap Forward” was also the beginning of China’s dependence on imports. According to Scott Rozelle, a development economist at Stanford University, China’s dependence on food imports stands at around ten percent. Compared to the high import dependency of neighboring Japan, this is a rather low number. However, the USA and the EU, as well as Canada and Australia, have surpluses and do not see their supply security at risk for the time being, even in the face of crises.
The investment bank Goldman Sachs recently informed investors that six provinces accounted for half of the country’s rice production last year. All six are now particularly affected by the drought. These are Sichuan, Chongqing, Hubei, Henan, Jiangxi and Anhui.
Most recently, the winter wheat crop was in short supply in the spring due to a crop failure (China.Table reported). In 2021, heavy rainfall caused floods in the affected areas, and planting seeds had to be postponed. The shortages in the country were then offset by sourcing on the world market. This, in turn, contributes to the price hikes that now fuel inflation in wealthy countries and leave poor countries struggling to make ends meet.
However, China’s government is massively hoarding a whole range of staple foods. For example, the People’s Republic now stores about 50 percent of global wheat stocks, and as much as 70 percent of corn (China.Table reported). As recently as mid-August, China Enterprise United Grain Reserve Ltd. Company 中企联合粮食储备有限公司 was formed from a merger of Sinograin and COFCO, one of the largest state-owned food processing holding companies, “to manage China’s national grain reserve,” according to a recent report by the Beijing-based German-Chinese Agricultural Center.
The details of the state reserves are probably one of the Communist Party’s best-kept secrets. Not even their location is usually revealed, presumably to protect them from looting. Michaela Boehme, an agricultural and food expert and China analyst at the German-Chinese Agricultural Center in Beijing, has collected what little information is available in a paper.
China operates several food reserve systems, according to Boehme’s report. Provinces are required to hold minimum levels of the following commodities:
The provinces are supposed to dump these goods on the market when prices rise to balance out fluctuations for consumers. “These reserves are released through an auction system when the availability of grains and oilseeds on the domestic market decreases after the harvest,” Boehme explains the structures of the national food reserves in her report.
Strategic pork reserves are also held to offset import dependence. Reserves for both live pigs and frozen pork have been maintained since 2007. When African swine fever (ASF) hit in 2019, pork prices rose by more than 110 percent in some cases, as the People’s Republic had to cull up to 40 percent of its pig livestock. At the time, that was equivalent to about one-fifth of the global pig population.
China’s growing food stocks are drawing criticism from other countries. After all, they exacerbate global shortages. Meanwhile, China remains largely unaffected by inflation. One reason for this is the government’s food stockpiles. By opening up its reserves, Beijing also controls prices on the market and thus curbs price inflation (China.Table reported).
But there are first indications that this is no longer enough in light of failed harvests. At the height of the pandemic in the summer of 2020, State and Party leader Xi Jinping urged citizens to restrain their food consumption (China.Table reported). “It is necessary to further enhance public awareness, effectively cultivate thrifty habits and foster a social environment where wasting is shameful and thriftiness is applaudable,” was the motto of the campaign personally proclaimed by Xi.
But the people of China need not worry about hunger in the foreseeable future. It is a core goal of the Party never to repeat the disasters of the Mao era. The reserves are high, and the country’s financial strength is gargantuan. It could also tap the global market at prices several times higher than current levels to feed its own population. Still, to ensure a stable food supply, the country needs to quickly adapt to the new conditions of climate change.
Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and business activities in the People’s Republic.
The Party congress in Beijing is still 47 days away, but the political leadership does not want to take any chances and has once again tightened the Covid measures in the country. In the province of Hebei, bordering the 22-million-metropolis Beijing, about four million people have to stay in quarantine from Tuesday evening until the end of the week.
In the port city of Tianjin, more than 13 million people had to line up for PCR testing. Previously, 80 Covid cases had been reported in the city. Also in the port city of Dalian, in the northeast, the main districts for about three million residents were sealed off and quarantined until Sunday, according to Reuters. In the tech metropolis of Shenzhen, some stores were forced to close on Tuesday evening local time on orders of authorities. At last count, new infections were reported in more than 20 provinces. Government advisers believe the number of infections could rise to 10,000 a day this week.
Experts warn of the consequences for global supply chains: According to the Kiel Institute for Economic Research (IfW), municipal lockdowns are already exacerbating bottlenecks along global supply chains. However, the current measures in Shenzhen and other cities are not yet comparable to the drastic lockdown in Shanghai last spring. “However, if COVID-19 cases continue to rise, a hard lockdown, especially in and around Shenzhen, could weigh on supply chains and the Christmas shopping season,” warned IfW trade expert Vincent Stamer. “Because the province of Guangdong around the metropolises of Guangzhou and Shenzhen on the Pearl River Delta is the strongest export province in China. Many consumer goods for the German market are also manufactured there.” niw/rtr
An article published on the German news portal Spiegel Online raises hopes for supplies of liquefied natural gas (LNG) from China. However, the report is based solely on an article in the British newspaper Financial Times (FT), which in turn draws on a report in the Japanese business newspaper Nikkei, to whose publishing group the FT also belongs. And the Nikkei report is also founded on very little new information.
China could ship LNG to Europe from its own well-stocked reserves this winter. Nikkei cites an anonymous source at the Chinese commodity trading house Jovo Group in Guangzhou as the main evidence of this. The latter reports having already sold “one shipment” to an EU buyer. Oil and gas producer Sinopec also officially reported selling excess LNG stocks to the global market.
However, the possible resale of Russian gas and oil by China has caused debates since the beginning of the war (China.Table reported), without any concrete ideas so far. Russia sells a large share of what no longer goes to Europe at a discount to China, India and other loyal buyers. In theory, nothing stands in the way of resale: Russia cannot dictate to China how it uses the LNG. However, there are significant bottlenecks in practice:
So while Chinese LNG deliveries are highly welcome in Europe and will ultimately happen, they will probably not be a decisive factor in overcoming the current acute energy crisis in Germany. fin
Since the days of Deng Xiaoping, economic growth has mattered more than anything for China’s leaders. The 10 percent annualized hyper-growth from 1980 to 2010 was widely seen as the antidote to the relative stasis of the Mao era, when the economy grew by only about 6 percent. But under President Xi Jinping, the pendulum has swung back, with 6.6 percent average growth from 2013 to 2021 much closer to the trajectory under Mao than under Deng.
Some of the slowdown was inevitable, partly reflecting the law of large numbers: Small economies are better able to sustain rapid growth rates. As China’s economy grew – from 2 percent of world GDP in 1980 at the time of the Deng takeoff to 15 percent when Xi assumed power in 2012 – an arithmetic slowdown became only a matter of time. The surprise was that it took so long to occur.
It is possible to quantify the foregone Chinese output from the slowdown. Had annual real GDP growth remained on the 10 percent trajectory under Xi, rather than slowing by nearly 3.5 percentage points since 2012, the Chinese economy today would be a little more than 40 percent larger than it is.
Yet the China slowdown is far more than an arithmetic event. Three powerful forces are also at work – a structural transformation of the economy, payback for past excesses, and a profound shift in the ideological underpinnings of Chinese governance.
The structural explanation puts an optimistic spin on the slowdown by framing it as the byproduct of a strategy aimed to improve the quality of economic growth. By staying the course of hyper-growth for too long, China became increasingly afflicted with the “four uns” of former Premier Wen Jiabao – an economy that was unstable, unbalanced, uncoordinated, and (ultimately) unsustainable. Rebalancing was the only way out – especially if it led to greener, consumer-led, and services-intensive growth that addressed the twin goals of balance and sustainability. If slower growth was the price, it was well worth paying it.
For a while, the structural slowdown appeared to be on track. Services-led growth boosted job creation and urbanization provided a powerful impetus to real incomes. Even though consumption was still lagging due to a weak social safety net that spawned excess precautionary saving, there was good reason to believe in the likelihood of a structural transformation. But the case for a structural slowdown was not without its downside – especially a worrisome weakening in Chinese total factor productivity growth, as well as stiff demographic headwinds from the one-child family-planning policy in effect between 1980 and 2015.
But there is good reason to believe that China’s slowdown may also be more of an unavoidable payback for the excesses of the hyper-growth era. This line of reasoning was, in fact, telegraphed in 2016 by a high-profile interview with an “authoritative person” published on the front page of the Communist Party’s organ, People’s Daily, which warned of the potential Japanization of an increasingly debt-intensive, bubble-supported Chinese economy. An overly leveraged Chinese property sector fits this script, as does the debt-fueled expansion of state-owned enterprises since the 2008-09 global financial crisis. For China, this became the case for deleveraging, well worth the short-term price to avoid the longer-term stagnation of Japan-like lost decades.
Finally, a major reversal in the ideological underpinnings of governance is also at play. As the revolutionary founder of a new Chinese state, Mao emphasized ideology over development. For Deng and his successors, it was the opposite: De-emphasis of ideology was viewed as necessary to boost economic growth through market-based “reform and opening up”.
Then came Xi. Initially, there was hope that his so-called “Third Plenum Reforms” of 2013 would usher in a new era of strong economic performance. But the new ideological campaigns carried out under the general rubric of Xi Jinping Thought, including a regulatory clampdown on once-dynamic Internet platform companies and associated restrictions on online gaming, music, and private tutoring, as well as a zero-COVID policy that has led to never-ending lockdowns, have all but dashed those hopes.
Equally important has been Xi’s fixation on national rejuvenation, an outgrowth of his so-called Chinese Dream that has led to a far more muscular Chinese foreign policy, in sharp contrast to Deng’s more passive “hide and bide” stance. Not by coincidence, this has fueled the trade and tech wars with the United States, given rise to China’s “unlimited partnership” with Russia, and stoked tension over Taiwan – all of which point to the unwinding of globalization, which had long benefited China more than any other country.
My mistake was to give China too much credit for devising a structural antidote to Wen’s “four uns.” That led me to place too much weight on the benign forces of rebalancing as a rationale for higher quality economic growth. I worried a lot about Japanization risks, but mainly as symptoms of a failed rebalancing. That led me to double down on rebalancing, arguing that structural transformation was China’s only real option.
My biggest mistake was to minimize the consequences of Xi Jinping Thought. Xi’s focus on ideology speaks much more to the resurrection of Mao’s legacy than to continuity with the Deng era. Under Xi, China’s new era is more about the supremacy of the Party, with an associated emphasis on power, control, and ideological constraints on the economy.
Unlike the China of Mao, when there wasn’t much growth to sacrifice, there is far more at stake today for the world’s second-largest economy. With the upcoming 20th Party Congress likely to usher in an unprecedented third five-year term for Xi, there is good reason to believe that China’s growth sacrifice has only just begun.
Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of the forthcoming Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, November 2022).
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
This gentleman once again receives an explicit warning from the authorities: Torrential rains and flash floods are forecast for Chongqing. In the meantime, Germany has also learned how dangerous floods caused by climate change can be. Especially if, like this resident of the western Chinese metropolis, you do not live in a properly reinforced house. He has built his hut under an elevated highway. Here, he is preparing his breakfast.
