The slowdown in the growth of the Chinese economy is shaking the foundations of the communist regime. It is becoming increasingly clear that the system that drove its development over the last decades is already exhausted and is even turning into a bubble that, if it bursts, could cause a major social and economic catastrophe, affecting the rest of the world as well.
The regime has implemented a series of expansionary economic policies over the last year to recover its economy. However, the 5.5% growth targets declared for 2022 are already unfeasible.
With an interventionist state at its maximum expression, the government no longer knows which variables to adjust to correct the economic indicators that seem to have no determined course.
The economic data for the year’s first half confirm the worst fears economists and market analysts announced. In the second quarter, China’s GDP grew by 0.4% year-on-year and contracted by 2.6% compared to the first quarter, according to the National Bureau of Statistics of China.
Since the data provided by the communist regime is unreliable, it is estimated that the economic indicators may be even worse than officially declared.
As expected, the communist regime does not assume these indicators as a failure and tries to disguise the statistics so that the situation does not seem so serious, highlighting, for example, that “China in the second quarter achieved a positive growth”; however it is common knowledge that a stable economy works not only with positive indicators but also when expectations are met. Which, in this case, is not happening at all.
The economic stability crisis that China is going through is multifactorial; of course, there are international context factors such as inflation and the war in Ukraine, but among the main ones, it can be easily seen that the actions of the regime and its communist policies assume a key responsibility in the situation.
Some points that explain China’s economic situation and put its stability in doubt
As mentioned above, global inflation and the war in Ukraine can somehow affect countries’ economies. However, here we will focus specifically on some aspects that respond exclusively to the communist regime and that today are crucial to understanding the economic instability that could end in a deep crisis if there is no change of course.
The West has deeply reduced its imports from China, partly because of its economic problems but also because of the decision of some countries to stop importing products from the Xinjiang area due to the serious allegations that indicate a systematic violation of the human rights of the Uighur ethnic minority, who are allegedly being used for slave labor in the developed productive system of the region.
On June 21, 2022, the measures imposed by the United States to regulate imports from the Xinjiang region finally came into force.
Under the new rules set out in the Uyghur Forced Labor Prevention Act (UFLPA), U.S. companies will not be able to import products from China’s Xinjiang region unless they can reliably demonstrate that they are not produced under conditions of forced or bonded labor.
Several imports from the resource-rich region, including cotton and tomatoes, had already been banned during the administration of Donald Trump, a great trailblazer in the fight against labor exploitation and human rights violations in Xinjiang.
When the measures were implemented, many U.S. officials urged allied countries and trading partners to join the boycott against the exploitation perpetrated by the Chinese communist regime, and indeed the European community, Canada, Britain, and other countries quickly joined in with measures along the lines of those implemented in the United States.
Another factor that is undoubtedly causing the economic crisis in China is the flight of international firms that no longer wish to produce in China due to the Orwellian closures imposed by the regime due to the coronavirus pandemic, cost increases, the massive regulatory repression by the Chinese Communist Party (CCP) and the plot carried out by responsible consumers in the West to stop buying from firms that produce in China with slave labor.
In this sense, companies such as Amazon, Airbnb, Linkedin, and Yahoo are just examples of the number of firms that decided to leave the Asian giant looking to settle in countries that grant better business conditions, greater freedom, and stability.
“While China represents a fast-growing and lucrative market, the cost-benefit calculus has become unfavorable for American businesses operating in sectors that Beijing is cracking down on and asserting more direct control over,” said Eswar Prasad, professor of economics and trade policy at Cornell University and former head of the China Division of the International Monetary Fund, aptly summarizing the reasons why so many firms decided to stop investing in China.
Real estate crisis
China’s profound real estate crisis makes it clear that the entire real estate system based on financial speculation is collapsing. This situation puts China’s productive system at risk, ultimately causing international investors to be much more cautious about investing in China and divert their funds to other markets.
Fitch Ratings, the international credit rating agency, published a report a few months ago stating that if the trend of falling real estate sales in China continues, at least one-third of the development companies rated by them will suffer an inevitable financial shortfall in the coming months.
Fitch Ratings’ warning is now coming true, and construction companies, due to their fiscal deficits and lack of liquidity, are forced to delay and even suspend works in progress, thus harming their clients, who, by suspending the payment of their installments, further deepen the delicate situation.
This lack of liquidity is also affecting the banking system. As demonstrated in the last weeks, certain banks did not allow small savers to access their funds in some regions, which generated social unrest and protests that were quickly repressed by the regime.
Despite having silenced the protesters, the regime did not manage to eliminate the evidence that China’s financial system could be on the verge of collapse and that it is precisely the communist policies adopted such as repression, lack of freedoms, lack of transparency, and excessive state intervention that are the leading causes.