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The Guardian - UK
The Guardian - UK
Comment
Rana Mitter

China’s race for growth is fading. So too is its dream of middle-class security

Xi Jinping sits at a black table with flowers on it, and Algerian and Chinese flags hanging behind.
Chinese President Xi Jinping attends a signing ceremony with Algeria’s president Abdelmadjid Tebboune held at the Great Hall of the People in Beijing on 18 July. Photograph: Reuters

Rishi Sunak and Keir Starmer are both putting faith in a five-point plan. Never knowingly undersold, China’s government announced last week that it’s going for a 31-point strategy.

Last week, there were alarmed faces in Beijing at the news that its GDP had improved by just 0.8% in the second quarter of 2023, prompting a sense that China’s economy needs a rapid boost. For the past few years, the private sector has been a target for high-profile crackdowns by the Chinese Communist party (CCP), worried that companies such as Tencent and Alibaba were enjoying too high a profile. Now, it says it wants to make the atmosphere for entrepreneurs “bigger, better, and stronger”.

This feels urgent, because China’s economic recovery seems to have stalled, and the CCP’s standing at home still depends on Xi Jinping’s government creating a “Chinese dream” of a middle-class lifestyle. The end of Covid restrictions, just eight months ago, seemed to mark the start of a powerful bounceback in consumption; travel agencies were besieged by people booking holidays they had been denied for nearly three years. But in the past few months there have been more worrying signs. Youth unemployment is growing: about one in five of China’s 16- to 24-year-olds were unemployed in June. Many university graduates have had to take jobs as delivery drivers because no professional jobs are available, and social media is awash with images of hard-earned but seemingly useless degree certificates.

In fact, there are plenty of jobs for those who want them. China has a severe shortage of teachers in the countryside, meaning that rural children tend to have a patchy education. But few urban graduates want to live in a village where running water is still a luxury, and China’s strict “residence permit” (hukou) system means young people who move to the countryside may never be allowed back to the big city.

In a few years, China will face the opposite problem. Thanks to three decades of the one-child policy, China’s working age population will shrink from the 2030s. Technology will need to adapt to create new jobs for a smaller workforce, while providing enough growth to pay for pensions and healthcare for the rapidly growing elderly population.

For years, if not decades, there have been predictions that China will become the world’s largest economy. But the current crisis might make it seem as if decline is now unavoidable. In fact, there are plenty of factors that could improve China’s situation. It spends 2.5% of GDP on research and development, an investment that pays off in areas such as its highly innovative technology sector. It also has the world’s second-largest single market after India, which this year became the world’s most populous country, and its population has a per capita average GDP of $12,000, more than twice that of India.

But China is laying traps for itself. “Security” has become the key political term: the word anquan has the double meaning of “safety” in Chinese, giving it a reassuring ring. Yet the term covers a wide range of issues, not just traditional military or national security, but economic and even cultural security. Press reports about the huge debts of local governments have been censored and journalists threatened with prosecution for endangering financial stability.

Free flow of information is crucial to the modern economy; in China, however, there is a danger that economists and entrepreneurs alike will find it unwise to state inconvenient truths. The fear of taking risks in case of state retribution will exacerbate a tendency summed up in a rhyme: Bu zuo, bu cuo (“If I do nothing, I won’t do anything wrong”).

The wider political atmosphere is adding to a sense of uncertainty. Another major story is the unexplained disappearance of China’s foreign minister, Qin Gang, who has not been seen in public since late June. Other high-profile figures such as entrepreneur Jack Ma have also disappeared in the past, only to reappear after being publicly chastened for their political indiscretions, but it’s unclear whether Qin is out of favour or just indisposed. These vanishing acts add to the sense that China’s political sphere is unpredictable and opaque, sapping economic confidence at home and abroad. Few if any businesses have agitated for democracy in China, but plenty have begged for more transparency. It’s no surprise that the 31-point plan includes assurances (but not guarantees) that the rights and interests of private entrepreneurs will be given due care and attention.

There is one factor that would almost certainly bring the economy to a halt: confrontation over Taiwan. Any military confrontation in the region would crash supply chains, lead investors to flee, and result in huge mutual sanctions between China and its western business partners. Economic realities don’t rule out conflict. But a middle-class Chinese professional waking up in the morning wants financial security, a cheaper mortgage, a secure pension and subsidised healthcare, including cheaper healthcare for their parents. A nationalistic war that impacts their lifestyle would be deeply unpopular.

In some ways, China’s inward turn is typical of the wider world as a whole. Brexit Britain is unusual in seeking new markets abroad as the US, China and the EU are all embracing protectionism. China’s assets are real, including high levels of urban education and an innovative private sector. But to thrive, it needs to prioritise openness and transparency at home and a peaceful and cooperative relationship with its overseas trading partners. Without those factors, a 31-, 56- or 93-point plan won’t be enough.

• Rana Mitter is ST Lee chair in US-Asia Relations at the Harvard Kennedy School

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