tag:theconversation.com,2011:/global/topics/chinese-economy-1095/articlesChinese economy – The Conversation2024-02-12T16:31:41Ztag:theconversation.com,2011:article/2215542024-02-12T16:31:41Z2024-02-12T16:31:41ZChina’s doom loop: a dramatically smaller (and older) population could create a devastating global slowdown<p><a href="https://theconversation.com/chinas-population-shrinks-again-and-could-more-than-halve-heres-what-that-means-220667">China</a> has announced that in 2023 its population declined from <a href="https://time.com/6556324/china-population-decline-births-deaths/">1.4118</a> to 1.4097 billion people. Forecasting by the <a href="https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/wpp2022_summary_of_results.pdf%22%22">UN</a> suggests China’s population will dip to 1.313 billion by 2050 and then down to about 800 million by 2100. This is a significant change and will have ramifications well beyond its borders. </p>
<p>There are two trends that underline such a demographic shift. First is the <a href="https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(22)02410-2/fulltext%22%22">ageing population</a> with the percentage of those aged 60 and older currently above <a href="https://time.com/6556324/china-population-decline-births-deaths/">20%</a> of the total population. Second, birth rates <a href="https://www.bbc.com/news/world-asia-china-68002803">have dropped significantly</a>, <a href="https://www.statista.com/statistics/250650/number-of-births-in-china/">from 17.86 million births in 2016</a> to 9.02 million in 2023. Several interrelated economic consequences of such shifts could emerge which ultimately can affect China’s economic wellbeing in the mid-to-long term and resonate globally.</p>
<p>More than one-quarter of China’s population will be over <a href="https://www.who.int/china/health-topics/ageing">60 by 2040</a> and so less economically active (retirement age for <a href="https://www.oecd.org/els/public-pensions/PAG2021-country-profile-China.pdf">men is 60 and for women</a> it’s 50-55). This will put pressure on China’s pension and elderly care systems with some <a href="https://www.msn.com/en-in/news/other/chinas-demographic-challenge-ageing-population-threatens-economic-shift-growth/ar-BB1gVgCo">predictions</a> indicating that the pension system could be bankrupted by 2035. </p>
<p>To avoid pension-related issues straining public resources, <a href="https://link.springer.com/article/10.1007/s42379-019-00040-7">possible</a> scenarios include raising the retirement age to get people to work for longer, increasing taxes to cover additional pension requirements and shrinking current benefits.</p>
<p>Changes in the healthcare system to cope with population changes could leave the many people feeling less well off or unhappy with services being reduced. This in turn could result in some degree of political instability. </p>
<p>In addition, as the dependency of the elderly on their children increases, <a href="https://www.msn.com/en-in/news/other/chinas-demographic-challenge-ageing-population-threatens-economic-shift-growth/ar-BB1gVgCo">household consumption</a>, savings and investment levels are likely to decline, which in turns negatively affects the overall health of the economy.</p>
<h2>Labour force reductions</h2>
<p>As older workers retire, there will be fewer people of <a href="https://link.springer.com/chapter/10.1007/978-3-642-15594-9_3">working age</a> in the total population, and therefore available to work. Taking measures to help <a href="https://www.proquest.com/docview/1501334873/A074EDC5E084226PQ/2?accountid=140108&sourcetype=Scholarly%20Journals">older people</a> continue to work for longer, for example, could become fundamental to long-term economic growth and to sustain the levels of GDP per capita. Nevertheless, as pointed out above, such measures could be politically unpopular.</p>
<p>Productivity gains (GDP per employed person) may also be affected by a reduced workforce, and one which is getting older. Some studies find evidence that labour productivity (output per working hour) varies with <a href="https://www.cato.org/cato-journal/spring/summer-2018/demographics-their-implications-economy-policy#demographic-implications-for-economic-growth">age</a>. It tends to increase as a person enters the labour market, then plateaus between 30 and 40, and eventually declines as an individual’s work life comes to an end.</p>
<p>Population shifts can lead to a <a href="https://www.investopedia.com/doom-loop-6748009">“doom loop”</a>, where one economic situation creates a negative impact and then another and another. As lower productivity begins to affect production in particular sectors, China may be compelled to increase imports to satisfy demand in those industries. </p>
<p>This could significantly affect innovation and entrepreneurship which in turn can further diminish productivity. <a href="https://www.nber.org/system/files/working_papers/w26651/w26651.pdf">New ideas</a>, drive economic growth. The size of the workforce affects innovation because as the number of employed individuals shrinks, the pool of new ideas becomes narrower. </p>
<p>If population growth becomes <a href="https://www.nber.org/system/files/working_papers/w26651/w26651.pdf">negative or falls to zero</a>, then the knowledge behind those ideas stagnates. In addition, there is evidence that the <a href="https://www.cato.org/cato-journal/spring/summer-2018/demographics-their-implications-economy-policy#demographic-implications-for-economic-growth">peak</a> of a person’s innovative activities and scientific output comes at around 30 and 40 years of age.</p>
<p>Current demographic trends are therefore likely to stifle technological advances and innovation in China. Innovation is essential to sustain and improve <a href="https://development.asia/summary/how-demographic-challenges-impact-innovation-asia-and-pacific">living standards</a>, consequently the levels of quality of life may come under strain as the population reduces. </p>
<p>At the same time, <a href="https://www.econbiz.de/Record/entrepreneurship-and-demographics-liang-james/10013112441">studies</a> suggest that entrepreneurship can be negatively affected by the ageing of the population as the percentage of young people is positively linked to entrepreneurial activities. This hampers the dynamism of the economy and contributes to slower economic growth.</p>
<p>China’s <a href="https://ec.europa.eu/social/main.jsp?catId=1196&furtherNews=yes&langId=en&newsId=2402">economic growth</a> depends on productivity and employment growth. Economic growth is driven by the <a href="https://www.cato.org/cato-journal/spring/summer-2018/demographics-their-implications-economy-policy#demographic-implications-for-economic-growth">effective combination</a> of labour and capital (money) to generate services or products. </p>
<p>This requires a constant or increasing <a href="https://www.nber.org/system/files/working_papers/w26651/w26651.pdf">population size</a>. Importantly, with its <a href="https://ec.europa.eu/social/main.jsp?catId=1196&furtherNews=yes&langId=en&newsId=2402">population going down</a>, China would need to increase its per capita productivity so as to sustain economic growth.</p>
<p>As we have seen, Chinese productivity is also likely to go down as a result of the demographic changes. Therefore, it is expected that the Chinese economy will experience a slower economic growth through, for example, the shrinking of the numbers of shoppers or consumers which will directly impact the retail trade sector. </p>
<p>In addition, lower demand is likely to intensify the ongoing crisis in the <a href="https://www.nytimes.com/2023/12/28/business/citic-trust-china-property.html">property sector</a>. Fewer people able to buy property will mean a fall in prices. </p>
<h2>And prices go up outside China</h2>
<p>China is the second largest market in the world responsible for over <a href="https://www.bbc.com/news/business-66840367">one-third</a> of the world’s growth and the <a href="https://www.spglobal.com/en/enterprise/geopolitical-risk/global-economy-in-china/">second</a> largest importer, so any changes will have global repercussions.</p>
<p>In Brazil and South Africa, for instance, both significant trading partners with China, these population shifts may lead to a <a href="https://www.abc.net.au/listen/programs/am/what-s-the-impact-on-australia-of-china-s-population-decline-/103367094">lower demand</a> for their exports. This may result in lower <a href="https://www.abc.net.au/listen/programs/am/what-s-the-impact-on-australia-of-china-s-population-decline-/103367094">employment</a> levels in those countries as exporting companies are forced to reduce operations. </p>
<p>As productivity declines in China, its trading partners may be compelled to import products from other economies which in turn can increase the prices of their products. In addition, emerging economies such as Thailand and Vietnam that rely on Chinese <a href="https://www.investec.com/en_za/focus/no-ordinary-wednesday-with-jeremy-maggs/china-s-recovery-implications-for-the-global-economy-and-emergin.html">outbound tourism</a> will experience a significant downturn in all tourism-related sectors such as transport and hospitality as the effect of population shifts lowers the number of people able to travel overseas.</p>
<p>Multinational corporations will also <a href="https://www.bbc.com/news/business-66840367">feel demand drop</a> as the Chinese consumer market is a large source of their revenue. The knock-on effect is likely to be global as suppliers and workers around the world find jobs disappearing. In short, as a recent <a href="https://www.oecd.org/economic-outlook/september-2023/">OECD report</a> puts it, a sharp economic slowdown in China would drag down global growth, the effects of which could be devastating.</p><img src="https://counter.theconversation.com/content/221554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jose Caballero does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A higher proportion of China’s population is elderly, and this will have knock-on effects on the rest of the world via their economy.Jose Caballero, Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2146432023-09-29T05:43:05Z2023-09-29T05:43:05ZPolitics with Michelle Grattan: Treasurer Jim Chalmers on jobs and work<p>Treasurer Jim Chalmers released his White Paper on employment this week. </p>
<p>Its aim is for everyone who wants a job to be able to get one without having to search for too long. </p>
<p>The paper says that a surprisingly large number of people are looking for work or for more hours of work, some three million, and that’s when unemployment is at a low 3.7% and we have labour shortages in multiple sectors. </p>
<p>Chalmers recognises that Australia’s labour market is “really resilient” and the government started in a position of “genuine strength” but the unemployment figures don’t paint the full picture: </p>
<blockquote>
<p>There are other indications around under utilisation and other data that we talk about in the white paper, but also a lot of people confront barriers to working or to working more. And that’s why really a big feature, a key focus of the white paper is how do we make it easier for people to grab the opportunities of a changing economy, which is creating jobs. </p>
</blockquote>
<p>In this podcast, Chalmers also canvasses inflation, migration, the cost of living pressures on households and concerns about China’s economy.</p>
<hr>
<p>OFFICIAL</p>
<p>The Hon Jim Chalmers MP</p>
<p>Treasurer</p>
<p>TRANSCRIPT</p>
<p>E&OE TRANSCRIPT
PODCAST
THE CONVERSATION
FRIDAY, 29 SEPTEMBER 2023</p>
<p>SUBJECTS: Employment White Paper, full employment, employment services, Indigenous employment, industrial relations, migration, housing, China economy, budget, inflation, cost-of-living relief, interest rates.</p>
<p>MICHELLE GRATTAN, HOST: Jim Chalmers has released his white paper on employment this week. Its aim is for everyone who wants a job to be able to get one without having to search for too long - that’s full employment. The paper says that a surprisingly large number of people are looking for work or for more hours of work - up to some three million - and that’s when unemployment is at a low 3.7 per cent and we have labour shortages all around the place. Today, we have Jim Chalmers to talk with us about some of the issues in the white paper.</p>
<p>Jim Chalmers, how is it that all these people are looking for work or for more hours when we have this low unemployment rate and labour market shortages? What’s the story here?</p>
<p>JIM CHALMERS, TREASURER: First of all, Michelle, I think it is good to recognise that the labour market has been really resilient. I think the most stunning indication of that is since we started measuring unemployment month to month in 1978, 45 years ago, there’s only been 18 times where unemployment had a three in front of it, and 15 of those times have been under this Prime Minister Albanese so we start from a position of genuine strength but as you rightly say in your question, there are still people looking for more work or for more hours. A couple of ways to understand that - first of all, the unemployment rate is not the whole story. There are other indicators around underutilisation and other data that we talk about in the White Paper on jobs and opportunities but also a lot of people confront barriers to working or to working more and that’s why really a big feature, a key focus of the white paper is how do we make it easier for people to grab the opportunities of a changing economy which is creating jobs but we need to get better at hooking people up to them.</p>
<p>GRATTAN: And obviously, this is going to extend across a number of areas. For example, we’ve got the Royal Commission on Disability tabled today, a lot of people in the disabled sector will need help to get more work.</p>
<p>CHALMERS: Absolutely, and I pay tribute to Bill Shorten and Amanda Rishworth for the work that they’re doing alongside this Royal Commission. And again, if your listeners read the Employment White Paper, there is a big focus on how do we make it easier for people to overcome barriers to work and those barriers might be disability, they might be caring responsibilities. Frequently, it’s about communities where there is entrenched and often intergenerational disadvantage - and that’s a bit personal for me because I represent communities like that and in lots of ways one of the reasons I’m here and certainly one of the motivations for the white paper is because we need to bust up this cycle of intergenerational disadvantage and long-term unemployment. There are barriers to people being beneficiaries of the big changes underway in our economy and our society and we want to make it easier for people to grab those opportunities.</p>
<p>GRATTAN: One particular area of disadvantage is Indigenous communities, especially those away from the major population centres, from towns and so on out in the outback. Have you any particular strategy to try to deal with that challenge?</p>
<p>CHALMERS: I think two things are really important here, Michelle. One of the specific announcements we made when we released the white paper was about a genuine partnership between the Government and the Coalition of Peaks, an economic partnership which is all about working out the specific challenges in First Nations communities, but particularly, as you rightfully say, in remote communities. The whole white paper tries to say when we’ve got unemployment low in aggregate across the country, when we’ve got all these opportunities in aggregate, how do we get much better about thinking about specific communities and First Nations communities are obviously a big part of that, so there’s the economic partnership with the Coalition of Peaks, there’s also the way that we are reforming the CDP, Linda Burney is leading that work but the Voice is important here as well because whether it’s jobs policy or other kinds of policies, we need to move away from making policy for First Nations people and move towards making policy with First Nations people and that applies to the labour market, just as it applies to all of the other ways that we want to close the gap in health, incarceration, education and the like.</p>
<p>GRATTAN: I just should explain for our listeners, the Coalition of Peaks is a representative body that covers a very large number of Indigenous organisations. Now just returning to the general on employment, do you think that our employment agencies need a shake up? The system was privatised decades ago. Has that worked? Is it working?</p>
<p>CHALMERS: I don’t think it’s working as it should, or as well as it can. I pay tribute here to my colleagues, Julian Hill, who’s doing an important piece of committee work on this but also Tony Burke, the responsible minister. We recognise that employment services aren’t doing as good a job as we want them to and so what we’ve done in the Employment White Paper is to say, here are eight principles - I won’t read them all out for your listeners - but eight principles that we will rely on to reform the system. Julian, Tony, myself and other ministers are working to reform employment services along the lines of these eight principles but our objective here is really to think about it in terms of how do we invest in people’s opportunities and their capacity, their capability to grasp the opportunities of a labour market which has been relatively strong and for lots of reasons, too many to go into here, the system has been falling short and that’s why we want to change it but we’re doing it in a really methodical, really considered way and we thought the best way to give people a sense of where that’s headed is to outline the eight principles that we’ll build the new system on.</p>
<p>GRATTAN: In the paper, you define full employment as everybody who wants to get a job being able to do so in a reasonable time, without too much delay. Did you consider putting a number on the unemployment rate that represents full employment? Why did you decide not to publish such a number? The Keating white paper on employment in 1994, for example, had a target of cutting unemployment from then 10 per cent to five per cent by the year 2000.</p>
<p>CHALMERS: Now I understand that people have raised this in the week or so since we released the white paper. There’s a few things I’d say about that. First of all, there is a technical assumption about full employment called the non-accelerating inflation rate of unemployment, the NAIRU and that’s an important assumption. It’s a necessary number that feeds forecasts in budgets and the work of the Reserve Bank but that is distinct, but complementary to how we talk about full employment in the white paper and the reason why we’ve tried to broaden it out and talked about sustained and inclusive full employment, a new definition of full employment, is because as I said earlier, this isn’t just about the unemployment rate, it’s about underutilisation, it’s about underemployment, it’s about concentrated areas of long-term unemployment and so we’ve tried to broaden out these considerations rather than say the be all and end all is one number. The other important thing here, the other reason why we haven’t gone down the path that you describe in your question is because we want to drive down full employment over time. There’s a near-term consideration but in the medium term and in the longer term, a lot of the investment we talk about in the white paper is about trying to get unemployment lower, as low as we can, but consistent with all of the other pressures in our economy, so one static number wouldn’t really do the job - it’s a range of measures and it’s an aspiration over time to create sufficient opportunities so that everyone who wants a job can find one without looking for too long.</p>
<p>GRATTAN: Business representatives have said that the initiatives in the White Paper will be overwhelmed by the Government’s proposed changes to industrial relations. How do you respond to this? And why was relatively little said about industrial relations issues in the paper?</p>
<p>CHALMERS: First of all, I don’t accept that we went ‘light on’ describing our changes to industrial relations. I think in a number of places in the White Paper, you can see where we’ve talked about job security or getting wages moving again, or the gig economy, these are all important parts of our industrial relations strategy so I’m not sure that that critique - obviously I’ve heard it – obviously, I listen respectfully when people have got views about the work that we’ve done here but I don’t accept or agree that industrial relations is absent, it’s in lots of ways kind of central but I think just as importantly, if you look at the feedback from the major business groups, which has been caricatured as focused almost exclusively on industrial relations - that’s not been the experience. The head of ACCI said “this is an important strategy, no doubt about it”, and backed in our approach to full employment, talked about our approach to productivity - quite positive about it. The BCA said that the White Paper’s areas are “well targeted to deliver sustained employment growth, job security and productivity.” They talked about the synergies between their work and my work and this paper. The AIG said, “it’s an important blueprint designed to equip ourselves for the future.” And I could go on, but I won’t. My point is here, Michelle, the business community - which I work closely with and I appreciate, and I’m grateful for all the ways that we do that, collaborate very closely - they’ve been quite positive overall about the Employment White Paper. They haven’t been focused exclusively on the areas where there’s not unanimity in industrial relations, and I really welcome the quite positive feedback that we’ve had from them.</p>
<p>GRATTAN: We’re getting a detailed policy on migration soon but there are a couple of questions I’d like to explore with you on this. The net migration intake is running well ahead of the forecast, is this a problem, especially given the acute housing shortage we confront?</p>
<p>CHALMERS: Well, the net overseas migration figure is historically high and that’s largely a consequence of two things. First of all, the international students are coming back much faster than was anticipated after COVID and secondly, we are an incredibly attractive destination for people on tourist visas. So the students and the tourists are driving that higher than usual number and both of those things are good for our economy in the sense that they feed our services, exports and so that’s important. I think one of the things that people don’t understand about the net overseas migration numbers is that it’s demand driven - it’s not a government target, it’s not a government policy to hit a certain number, it is a consequence of those students and the tourists and it’s a net figure and so what we need to do is to make sure that we can manage pressure on our population and that’s what we’re doing. That’s one of the big reasons why housing has become one of the top handful of priorities for the Government - billions of dollars flowing into investing in affordable housing and that’s because if we want all of the benefits of migration, being an attractive place for people to live, then we’ve got to make sure that we manage those pressures wisely and that’s what we’re doing, that’s what our housing policies are about, the Employment White Paper goes to it, and Clare O'Neil’s migration strategy will go to that as well.</p>
<p>GRATTAN: The Government’s emphasis is on attracting high skilled migrants yet a lot of our labour shortages are in semi-skilled or even unskilled work - for example, in aged care, even in the building industry. So, how do you deal with this problem?</p>
<p>CHALMERS: Well, the migration strategy that Clare O'Neil is putting together does go to some of these issues - and aged care, in fact, has been already - even before the release of that overarching strategy has been a big priority for us, and in building as well. I think what people will see, and I don’t want to kind of front run or pre-empt Clare’s really great work on this, but the migration strategy is largely an economic strategy. It’s about making sure that the migration system works for us, in our interests and part of that is making sure that we’re filling the needs of workers in areas where they are genuinely needed, but also not treating that as a substitute for training. The Employment White Paper has a big focus on training and education, lifelong learning, retraining, reskilling, and that’s our highest priority. But the migration system’s got a role to play here, not as a substitute for training but as a way to make it complementary and that’s the approach that Clare’s taking.</p>
<p>GRATTAN: One of your goals is to reignite productivity, and of course, you’re overhauling the Productivity Commission, but is this getting harder to do in an increasingly service-dominated economy? There’s much less scope for productivity improvement in areas like hairdressing or aged care than in manufacturing.</p>
<p>CHALMERS: I think it’s harder to measure productivity in some of these industries, the services sector, and we know from the Intergenerational Report and the Employment White Paper that we expect workers, for example in the care and support economy, the need for those workers is going to absolutely explode as our population ages and it is harder to measure productivity in those areas but that doesn’t make it any less important. And so, so much of our training agenda, so much of what we’re investing in in terms of participation, all of that is to try and make sure that our whole economy but particularly sectors where we’re going to get lots of growth, that they are as productive and innovative and as competitive as possible. How we adapt and adopt technology is crucial to that, how we manage the energy transformation is crucial to that but I think most of all, how we invest in people, how we invest in the stocks of human capital in this country will go a long way to determining whether we can make these growing sectors of the economy, including in the services sector, more productive so that people can get higher wages and lift living standards overall in our economy.</p>
<p>GRATTAN: What happens to the economy also depends on what happens elsewhere outside Australia. You’ve been worried about developments in China over recent months, the slowing of the Chinese economy. What’s your latest thinking and information on this?</p>
<p>CHALMERS: Well, I’m still quite concerned about China. I think you would expect me to sort of maintain a hierarchy of concerns about our global economy in our domestic economy and I think in the global economy, China’s really number one for me at the moment. There are challenges in their property sector in particular, we’ve seen really quite a substantial slowing across a range of indicators in the Chinese economy and that has big consequences for us, of course, in a world where China plays such a big role in our prospects and so I’m still concerned about it. I monitor the Chinese economy very closely, as does the Treasury, as do all the private sector players that we talk to and it remains an ongoing concern. I’m confident that the authorities there know that they’ve got a problem and you hear in dispatches the different sorts of considerations that that might bring the Chinese Government but overall, China’s still a big concern, it’s something that we monitor incredibly closely.</p>
<p>GRATTAN: You’ve just announced a $22 billion surplus for last financial year, the Budget projects deficits for this financial year and continuing on. But surely now, realistically, there’s a good chance of a surplus this financial year isn’t there?</p>
<p>CHALMERS: It genuinely remains to be seen, Michelle, and revenue in the budget is really unpredictable at the moment for a couple of reasons. First of all, we’ve seen a bit of a recovery in some of our commodity prices, but they have actually been underneath forecast trajectory, for a little while, earlier in the year and so how that all kind of nets out remains to be seen - revenue is a bit unpredictable and also, there are good reasons to be conservative about all of this. Our economy is slowing considerably as a consequence of China and the impact of the rate rises which began before the election and that has implications for revenue and for the budget as well, so I would prefer to be careful and cautious and conservative about revenue really all of the time, that’s the approach I take but especially when the global and domestic economy is so unpredictable and that has consequences for the prices the world pays for our goods and services.</p>
<p>GRATTAN: There is increasing pressure at the moment, of course, given higher petrol prices and people’s grocery bills going up and so on to spend more money. We’re hearing calls all over the place for extra help for households. You’re resisting this. How do you justify that?</p>
<p>CHALMERS: Well, the point I’m making is that we are right now rolling out billions of dollars in cost-of-living help and that’s because we recognise that people are under extreme pressure right now and that’s why we’ve been able to get the budget in better nick but that hasn’t come at the expense of rolling out relief - whether it’s help with energy bills or taking the edge off out-of-pocket health costs, the biggest increase in Commonwealth Rent Assistance in 30 years, really so many different ways we’re trying to roll out this cost-of-living help to take some of the edge off inflation without adding to it and so that’s our focus, that’s still rolling out right now and that’s an important part of helping people to deal with it. We’ve also got to ensure that we can afford whatever assistance we’re providing and last year we were able to get the budget in better nick and provide that assistance but the pressures on the budget are actually intensifying rather than easing - whether it’s aged care or Medicare, defence, the NDIS, the interest bill on our debt, we need to make sure that we’re managing the economy in the most responsible way. We’ve struck a good balance to here on cost-of-living help as well as improving the budget position and that’s our focus right now - rolling that help out. In future budgets, if there’s room to do more or if there’s a case to do more, obviously we consider that then but for now, our focus is on the cost-of-living relief that we’ve already budgeted for.</p>
<p>GRATTAN: This week we saw the monthly inflation numbers tick up. Do you think that people should be worried about another interest rate rise now or later?</p>
<p>CHALMERS: As you know Michelle, I try not to predict or pre-empt the decisions that the Reserve Bank takes independently but what they would typically do is they would look at the overall direction of travel when it comes to inflation and yes, there was a tick up in that monthly number but those monthly numbers are notoriously volatile, they can get lumpy and so what they would do is they would see that quarterly inflation peaked before the election last year, it peaked in annual terms around Christmas time, the overall direction of travel has been that inflation is moderating and I would anticipate that they would factor all of that in, including really quite a weak retail figure that we got this week as well. They will factor all of that in but the other thing which is really important here - and none of your listeners who’ve got a mortgage need reminding of this - but the interest rate rises that are already in the system are biting quite hard in our economy, you see that in the consumption figures, you see it in retail, you see it in household saving and so the Reserve Bank, when they look at this and take their decision independently, they will weigh all of those things up and not just one monthly inflation figure which was driven largely by petrol prices as a consequence of some of the global suppliers pulling back on production.</p>
<p>GRATTAN: Jim Chalmers, I just want to finish up by going back to the Employment White Paper and putting to you a somewhat contrarian point of view when we’re thinking about encouraging more employment, people to work longer. Do you think there’s a case to be made that people are actually working too much? In other words, they need jobs, obviously, but when we talk about more and more hours, more and more participation, this is good for economic growth but beyond a certain point, are there social and other costs from everyone working so much?</p>
<p>CHALMERS: Of course there are and what we’re really trying to do here is to give people choices. People are best placed to work out what is the best combination of their work responsibilities and family responsibilities and how do they work enough and earn enough to provide for their loved ones and what we’re talking about here, whether it’s our changes to early childhood education or the way that we think about investing in skills or really right across the board including making it easier for older people to work a little bit more if they want to, not forcing them but giving them that choice - all of these things really are about helping people make the best choice that they can for their own situation. Obviously it’s concerning when so many people have to work so many jobs in order to provide for their loved ones and so we want to make sure that jobs are not just secure but that people are fairly paid so that they get decent reward for their effort and that all comes back to giving people the choices and the capability and the skills to do the best thing for themselves and for their loved ones and that’s a pretty good summary of what we’re trying to do in the White Paper.</p>
<p>GRATTAN: Jim Chalmers, thanks very much for making time to catch up with us today. It’s been a big week for you because you’ve been travelling around Queensland, selling the message and getting in touch with people’s feedback, no doubt. That’s all for today’s politics podcast. Thank you to my producer Mikey Burnet. We’ll be back with another interview soon but goodbye for now.</p>
<p>ENDS</p><img src="https://counter.theconversation.com/content/214643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In this podcast, Treasurer Jim Chalmers canvasses inflation, migration, the cost of living pressures on households and concerns about China’s economyMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2120102023-09-27T03:44:15Z2023-09-27T03:44:15ZChina’s new anti-espionage law is sending a chill through foreign corporations and citizens alike<p>Earlier this year, China <a href="http://www.npc.gov.cn/npc/c30834/202304/b964e9c05be34eb3a7090f2456a4e139.shtml">updated</a> its anti-espionage law amid an intensifying rivalry with the US and growing distrust of the Western-led international order. </p>
<p>The law broadens the scope beyond what it originally sought to prohibit – leaks of state secrets and intelligence – to include any “documents, data, materials, or items related to national security and interests.” </p>
<p>The law also empowers authorities with new surveillance powers. These include the ability to access people’s emails or social media accounts on electronic devices.</p>
<p>The Chinese government is clearly using the new catch-all provision to cast a wider net to identify “spies”. It is targeting not only Westerners working in China, but also Chinese nationals who work for foreign companies or organisations or interact with foreigners in any way. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1704318496942010654"}"></div></p>
<p>The law is more than just theoretical – it has teeth. Last month, a new national campaign was launched with rewards of up to <a href="http://www.xinhuanet.com/politics/2017-04/10/c_1120777169.htm">500,000 renminbi</a> (just over A$100,000) for anyone reporting suspicious individuals or suspected espionage activities. </p>
<p>Red banners have started appearing on Chinese streets, proclaiming </p>
<blockquote>
<p>Implement the new anti-espionage law, mobilise collective efforts to safeguard national security. </p>
</blockquote>
<p>Posters with a hotline number for reporting suspicious individuals can now be found on public transport, as well.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/545464/original/file-20230830-19-l3kvt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/545464/original/file-20230830-19-l3kvt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/545464/original/file-20230830-19-l3kvt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/545464/original/file-20230830-19-l3kvt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/545464/original/file-20230830-19-l3kvt9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/545464/original/file-20230830-19-l3kvt9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/545464/original/file-20230830-19-l3kvt9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Hotline number for reporting suspicious activities.</span>
<span class="attribution"><span class="source">Author provided</span></span>
</figcaption>
</figure>
<p>These visible signs serve as reminders that spies could be anywhere, potentially feeding sensitive information to foreign entities that pose threats to China’s national security and interests.</p>
<h2>Implications of the new law</h2>
<p>The new law has sent a chill through multinational corporations, Chinese companies and other organisations. </p>
<p>State-owned companies or those affiliated with the government are <a href="https://www.ft.com/content/0b869421-10fd-41e7-8280-5d09a224062f">distancing themselves</a> from
multinationals offering legal, investment and consultancy services, fearful of being associated with foreign entities.</p>
<p>Multinationals themselves were once welcomed with open arms to help accelerate China’s economic and technological development. Now, they find themselves entangled in a complex web of regulations governing the cross-border transfer of data and other information. Many are considering <a href="https://www.ft.com/content/2f52965f-3bdb-4223-891b-e2208ad2e16e">decoupling</a> their data and IT systems from China.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1706457355058319662"}"></div></p>
<p>From an individual standpoint, anyone with foreign affiliations, including those who have returned from overseas, feel as if they are on a kind of community “watch list” upon arrival in China. </p>
<p>Some Chinese firms indicate in <a href="https://www.toutiao.com/article/7272284502448407055/?log_from=d0901d6b2a217_1693371484238">recruitment</a> drives for new employees they will not consider applicants who have returned from certain overseas regions. The perception is they may have been exposed to foreign forces who use money, friendship or even romance to coerce them into becoming an undercover agent or informant. </p>
<p>An invisible net has been cast over every stratum of Chinese society. Many Chinese people will no doubt become more hesitant in their interactions, cautious in their communication and sceptical in their collaborations. This will only further encourage people to retreat into silence or resort to coded language in both face-to-face conversations and social media. </p>
<p>And those perceived as having divergent political or ideological views will especially be under scrutiny. This includes private businesspeople, entrepreneurs and those working in non-government sectors who openly voice political or ideological values that go against the Communist Party.</p>
<p>The expansive nature of the law evokes memories of the Cultural Revolution, an era in which little trust existed in society and even among family members. </p>
<p>An unsettling divide is emerging today between those in governmental circles and everyone else. Having a foreign diploma or other affiliation was once seen as a positive, offering one a different perspective and international experience. Now, however, it could be seen as a liability or even a crime.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-us-and-china-may-be-ending-an-agreement-on-science-and-technology-cooperation-a-policy-expert-explains-what-this-means-for-research-212084">The US and China may be ending an agreement on science and technology cooperation − a policy expert explains what this means for research</a>
</strong>
</em>
</p>
<hr>
<h2>Ambiguity has risks</h2>
<p>The first iteration of the anti-espionage law was enacted in 2015 and was aimed at bolstering national security and generally protecting against espionage activities detrimental to the country’s interests. </p>
<p>The updated law comes in a changed world. The rivalry between the US and China has escalated in recent years in trade, technology, defence and influence over global institutions. Both nations are actively engaging in intelligence operations to understand each other’s capabilities, intentions and vulnerabilities. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/no-indication-of-aliens-spy-balloon-saga-continues-to-surprise-amid-rising-us-china-tension-199769">'No indication of aliens': spy balloon saga continues to surprise amid rising US–China tension</a>
</strong>
</em>
</p>
<hr>
<p>Because the new law is so expansive and ambiguous, however, the implementation and enforcement could be difficult. And it could diverge significantly from the initial objectives of lawmakers. </p>
<p>When laws are ambiguous, it leaves ample room for interpretation and potential exploitation. The lack of clarity with the revised anti-espionage law could give rise to witch hunts, leaving people vulnerable to accusations that lack substantial evidence. The ripple effect could extend beyond China’s borders, affecting academic exchanges, technological cooperation and diplomatic relations. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1704405881591619992"}"></div></p>
<p>If collaboration with the outside world becomes secondary to perceived threats, it could also deter both foreign investment and domestic private enterprises in China, stifling economic growth. </p>
<p>At a time when the Chinese economy is grappling with domestic challenges and an increasingly hostile global environment, this could hasten the “decoupling” from China that many in the West are advocating for.</p><img src="https://counter.theconversation.com/content/212010/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marina Yue Zhang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The revised law is targeting not only Westerners working in China, but also Chinese nationals who work for foreign companies or organisations or interact with foreigners in any way.Marina Yue Zhang, Associate Professor, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2068082023-06-21T14:52:58Z2023-06-21T14:52:58ZChina’s economic recovery is built on increasingly shaky foundations and that could affect the whole world<figure><img src="https://images.theconversation.com/files/532745/original/file-20230619-20-jl6eqw.jpg?ixlib=rb-1.1.0&rect=29%2C17%2C3964%2C2640&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People shopping in downtown Shanghai, China.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghai-china-july-21st-2016-local-508535308">LMspencer/Shutterstock</a></span></figcaption></figure><p>Confidence in China’s post-COVID recovery has started to waver over the past week after the world’s second-largest economy reported disappointing figures for two of the major drivers of its economy: <a href="https://openknowledge.worldbank.org/entities/publication/d20ddc24-0ad1-5eb7-a3d5-d2864897c3a6">property and exports</a>.</p>
<p>In response, China’s central bank is taking the opposite approach to western counterparts like the Bank of England by <a href="https://edition.cnn.com/2023/06/20/economy/china-lpr-cut-economy-intl-hnk/index.html">cutting its main interest rates</a> to try to stimulate investment in its economy.</p>
<p>The Chinese government had hoped to recapture previous economic highs after <a href="https://news.sky.com/story/zero-covid-absolutely-hammered-china-but-rapid-dropping-of-containment-laws-reveals-extent-of-pressure-it-was-under-12775008">ending its zero-COVID policy in December 2023</a>. But there are some indications that the country may instead settle into the same moderate growth patterns over the medium to long term as other advanced economies.</p>
<p>When Chinese GDP growth bounced back to exceed market expectations in the first quarter of 2023, <a href="https://www.china-briefing.com/news/chinas-economy-in-2023-gdp-grew-by-4-5-in-q1/#:%7E:text=China's%20economy%20expanded%204.5%20percent,recovery%20is%20right%20on%20track.">growing at 4.5% year on year</a>, it was good news for China and for the global economy. The surge was partly led by retail sales shooting up by 10.6% in March as the lifting of COVID restrictions in December 2022 started to filter through to the domestic economy.</p>
<p>More importantly for the global economy, the end of China’s COVID restrictions unblocked supply chains and led to <a href="https://apnews.com/article/china-trade-import-export-us-037e1dce8531d7f1d4acc1189e65bf83">a hefty 14.8% rise in exports in March</a> compared with the same month in 2022. Of course, it’s easy to hit high growth rates from a low base, but this was still a welcome sign that China could meet <a href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023">International Monetary Fund (IMF) expectations</a> for GDP growth of 5.2% in 2023.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line graph showing GDP peaking close to 20% in Q1 2021 before falling and flattening out to 5% in Q1 2023." src="https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=308&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=308&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=308&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=387&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=387&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=387&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.statista.com/statistics/271769/quarterly-gross-domestic-product-gdp-growth-rate-in-china/">Statista</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>However, all was not what it seemed: China’s recovery is actually built on quite shaky foundations. There is weakness in domestic real estate investment and export expectations due to uncertain global demand and ongoing trade frictions with the US. So what can – and should – the Chinese government do about this?</p>
<p>Domestically, the Chinese government has started to use monetary policy – <a href="https://www.nytimes.com/2023/06/19/business/china-loan-prime-rates.html#:%7E:text=Tuesday's%20cut%20brought%20the%20benchmark,companies%20and%20state%2Downed%20enterprises.">interest rate cuts</a> – to generate growth via personal and business borrowing. And the amount of <a href="https://mv-pt.org/monthly-monetary-update/">money circulating in China’s economy has picked up</a> because people and businesses are finding it easier to borrow. This means that domestic demand could help meet the government’s official 5% growth target for 2023.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing rate of money growth in China falling from a pre-2010 peak." src="https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=493&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=493&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=493&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://mv-pt.org/monthly-monetary-update/">Institute of International Monetary Research, University of Buckingham</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Longer-term, however, uncertainty abounds about China’s growth prospects. <a href="https://www.imf.org/en/News/Articles/2023/02/02/cf-chinas-economy-is-rebounding-but-reforms-are-still-needed">The IMF has forecast</a> GDP growth of 4.5% in 2024, falling to around 3.2% by 2028. This slowdown is expected because of issues including further fragility in China’s real estate sector and a decline in its workforce due to age.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/china-property-crisis-why-the-housing-market-is-collapsing-and-the-risks-to-the-wider-economy-189082">China property crisis: why the housing market is collapsing – and the risks to the wider economy</a>
</strong>
</em>
</p>
<hr>
<p>Before COVID, China put its increasingly urban, working-age population to work in booming industries such as green tech to turbocharge its growth. This partly drove soaring <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2021&locations=CN&start=1961&view=chart">GDP growth from -27.3% in 1961 to 6% pre-COVID</a>. But achieving similar rates of growth won’t be as easy in the future. </p>
<p>The reasons for the spectacular past performance of China’s economy are well known: the 1978-2019 period was when China opened up its economy and saw its exports boom. Research often links <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1667775">competition through trade to productivity and growth</a>. It also helped that, during this time, <a href="https://www.jstor.org/stable/41038787">China shifted its manufacturing focus</a> from low-productivity industries such as mining heavy metals and coal to highly productive enterprises like computing and green technology. </p>
<p>As mentioned, urbanisation and the shift in population from rural to urban areas <a href="https://link.springer.com/article/10.1007/s11769-022-1255-7">have played a part</a> in China’s past positive performance. And China’s government has also used <a href="https://www.bbvaresearch.com/en/publicaciones/china-will-infrastructure-investment-become-the-key-growth-stabilizer-in-2022/">infrastructure investment</a> to boost business performance during downturns quite effectively.</p>
<h2>Long-term, moderate growth</h2>
<p>China is unlikely to be able to use the same strategies to return to its previous high-growth path. It’s much more likely to settle into the kind of moderate growth experienced by developed economies like the US and UK (pre-COVID). </p>
<p>To understand why, let’s start with the fundamentals. The size of its workforce is declining, affecting the contribution of labour to the economy. China is also facing a demographic problem of a decreasing population – <a href="https://theconversation.com/chinas-population-is-now-inexorably-shrinking-bringing-forward-the-day-the-planets-population-turns-down-198061">a drop of 850,000 last year</a> – and an increasing dependency ratio. This means there are fewer workers to support those that have retired.</p>
<p>An increasing dependency ratio has implications for the future of trade because total population consumption will start to outstrip whatever is produced by the working population. Domestic demand will grow faster than domestic output and this will create a mismatch when it comes to the way China has traditionally invested in its economy.</p>
<p>In the decades since it opened up its economy, China invested in domestic businesses (state-owned enterprises) through its largely state-owned banks. But if China’s savings ratio starts to fall due to its demographic changes – as its ageing population stops working and starts spending their savings rather than generating more income – the Chinese government will have to find a new way to finance its domestic investment in the private sector. </p>
<figure class="align-center ">
<img alt="A statue of a bull outside a glass skyscraper with flags including China's flag." src="https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A bull sculpture outside the stock exchange building in Shenzhen, China.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shenzhenchinajune-152015-shenzhen-stock-market-building-297414167">zhu difeng/Shutterstock</a></span>
</figcaption>
</figure>
<p>The state’s reputation for strong intervention in private industry will complicate this issue by weakening growth in private investment, which will further restrict the domestic economy. Stronger <a href="https://www.reuters.com/markets/rates-bonds/shadow-banking-risks-china-curbed-significantly-regulator-says-2022-07-30/">regulation of shadow banking</a> has decreased access to finance for both people and businesses. The financial sector remains heavily regulated and high-profile interventions in the digital economy have created <a href="https://www.cnbc.com/2023/05/24/chinas-tech-sector-may-see-fewer-surprises-in-regulation-sp-report.html">a sense of uncertainty</a> that may weaken private investment. </p>
<p>A <a href="https://openknowledge.worldbank.org/entities/publication/d20ddc24-0ad1-5eb7-a3d5-d2864897c3a6">recent World Bank Group study</a> projects Chinese growth of 4% in the decade after 2030, if there are comprehensive reforms in areas like state regulation of private business. But with only limited reform, 2030’s growth is projected to fall below 2%, according to the World Bank. This will have an impact far beyond China’s borders. </p>
<p>The country has the potential to grow faster than the advanced economies for decades if it can overcome these challenges. And, of course, whatever happens in China is likely to have a major effect on global growth.</p><img src="https://counter.theconversation.com/content/206808/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kent Matthews receives funding from the ESRC (ES/P004199/1) for the project Shadow Banking and the Chinese Economy: A Micro to Macro Modelling Framework</span></em></p>China is trying to revive its economy to reach pre-COVID heights but future growth rates might be closer to developed economies like the US and UK.Kent Matthews, Professor of Banking and Finance, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2062792023-05-31T12:38:36Z2023-05-31T12:38:36ZAmid fears of Chinese influence, the Committee on Foreign Investment in the United States has grown more powerful<figure><img src="https://images.theconversation.com/files/528124/original/file-20230524-29-gqrmoj.jpg?ixlib=rb-1.1.0&rect=21%2C0%2C4824%2C3094&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Business deals by foreign countries in the U.S. can be reviewed by the government for national security risks.</span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/SAYzxuS1O3M">Jason Leung for Unsplash</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>A Chinese private equity firm, <a href="https://www.primavera-capital.com/">Primavera Capital Group</a>, <a href="https://www.wsj.com/articles/princeton-review-and-tutor-com-are-now-owned-by-a-chinese-company-58ebea38">acquired</a> the well-known test preparation company <a href="https://www.princetonreview.com/">Princeton Review</a> and an online learning platform, <a href="https://www.tutor.com/">Tutor.com</a>, in May 2023. </p>
<p>The move, like other Chinese investments in tech and those that deal with personal information, is increasingly drawing the attention of <a href="https://www.foxnews.com/politics/republican-demands-china-american-education">politicians,</a> the <a href="https://www.wsj.com/articles/princeton-review-and-tutor-com-are-now-owned-by-a-chinese-company-58ebea38">U.S. government and national security experts</a> – especially as tensions rise between the U.S. and China.</p>
<p>What remains unclear, however, is if this seemingly routine business acquisition was reviewed by the <a href="https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius">Committee on Foreign Investment in the U.S.</a>, which has authority to examine transactions involving foreign investment. The committee is largely prohibited from publicly <a href="https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius">disclosing any information filed with it</a>, including if it is reviewing a transaction or if one was referred for review. </p>
<p>While the committee is hardly a household name, its mission and <a href="https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk">expanding oversight</a> have important implications for the U.S. economy and national security. </p>
<h2>Government oversight</h2>
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<a href="https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The dark grey dome of the U.S. Capitol Building against a light grey sky." src="https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/528130/original/file-20230524-27-rcavor.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Congress strengthened the Committee on Foreign Investment’s powers, allowing it to scrutinize foreign investments in areas including cybersecurity, microelectronics and artificial intelligence.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/SYHi8oX0JC8">joshua sukoff for Unsplash.com</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p><a href="https://www.archives.gov/federal-register/codification/executive-order/11858.html">The Committee on Foreign Investment</a>, a U.S. government interagency committee established in 1975 by <a href="https://www.whitehouse.gov/about-the-white-house/presidents/gerald-r-ford/">President Gerald Ford</a>, is tasked with studying and <a href="https://www.everycrsreport.com/reports/RL33388.html">coordinating the implementation of policy</a> on foreign investment in America.</p>
<p>Investment by foreign countries <a href="https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk">greatly benefits</a> the U.S., supporting <a href="https://www.trade.gov/sites/default/files/2022-04/IndirectJobsSelectUSABrief.pdf">10.1%</a> of the total labor force in 2019. Yet beginning in the 1980s, the federal government grew increasingly concerned about potentially harmful effects of foreign investment in the U.S. For example, if a foreign firm gets control of <a href="https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk">sensitive technologies</a>, it could hurt national competitive advantages or even threaten national security.</p>
<p>The primary objective of the committee is to review selected foreign investments and some real estate transactions by foreigners in the U.S. for their national security implications. Real estate transactions are generally scrutinized only when a transaction involves land that is either close to a <a href="https://www.morganlewis.com/pubs/2022/08/revisiting-cfius-jurisdiction-over-real-estate-transactions">military base or near an airport or seaport</a>. </p>
<h2>Vetting foreign investments</h2>
<p>In the 1980s, political concern grew about <a href="https://www.gao.gov/assets/nsiad-91-140.pdf">Japanese investment</a> and, specifically, the proposed purchase by Japanese computer giant <a href="https://www.fujitsu.com/global/products/computing/pc/notebooks/">Fujitsu</a> of chipmaker <a href="https://www.businesswire.com/news/home/20160919005796/en/Semiconductor-Successfully-Completes-Acquisition-Fairchild-Semiconductor-2.4">Fairchild Semiconductor</a>. The purchase of Fairfield Semiconductor was considered a sensitive industry, with potential defense applications, and prompted Congress in 1988 to pass the <a href="https://www.gao.gov/products/gao-06-135t#:%7E:text=The%201988%20Exon%2DFlorio%20amendment,President%20has%20taken%20only%20once.">Exon-Florio amendment</a> to the <a href="https://www.fema.gov/sites/default/files/2020-03/Defense_Production_Act_2018.pdf">Defense Production Act of 1950</a>. </p>
<p>This amendment empowered the committee to not just review foreign investment deals but also to recommend rejecting them. Acting on its recommendation, a U.S. president could <a href="https://www.cooley.com/services/practice/export-controls-economic-sanctions/cfius-overview">block a foreign transaction</a> on “national security” grounds. For instance, in 1990, President George H. W. Bush <a href="https://nuke.fas.org/guide/china/contractor/90020112.html">voided the sale</a> of MAMCO Manufacturing, which made metal parts for airplanes, to a Chinese agency, ordering the China National Aero-Technology Import & Export Corporation to <a href="http://www.usa.com/frs/mamco-manufacturing-inc.html">divest itself of the Seattle-based company</a>. </p>
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<a href="https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A teal-green schematic on a black background computer screen." src="https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/528134/original/file-20230524-21-znbif1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Foreign investments scrutinized by the U.S. can range from agricultural supply chains to biotechnology and quantum computing.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/EUsVwEOsblE">adi goldstein for Unsplash.com</a></span>
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<p>In the context of a committee review, the term <a href="https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk">national security</a> typically refers to foreign transactions that could cause significant outsourcing of jobs, a loss of control over agricultural supply chains, the sharing of sensitive technologies, control of a firm that satisfies <a href="https://www.gibsondunn.com/wp-content/uploads/documents/publications/West-NatlSecImplicationsOfForeignInvestment.pdf">defense needs</a>, or the impairment of critical infrastructure.</p>
<h2>Strengthening the committee</h2>
<p>In 2006, <a href="https://www.dpworld.com/">Dubai Ports World</a>, owned by the United Arab Emirates government, was about to gain managerial control of six U.S. ports in a major deal. Because of <a href="https://www.npr.org/2006/02/22/5228645/new-york-senator-wants-to-halt-ports-deal">terrorism-related concerns</a>, <a href="https://www.schumer.senate.gov/">Sen. Chuck Schumer</a> led a <a href="https://uscpublicdiplomacy.org/pdin_monitor_article/dubai-ports-controversy-uproar-heard-round-world">campaign against this proposal</a> and the transaction was eventually called off, even though it had initially been approved by both the committee and <a href="https://www.whitehouse.gov/about-the-white-house/presidents/george-w-bush/">President George W. Bush</a>.</p>
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<a href="https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="White sand beach in the foreground with Abu Dhabi skyscrapers in the background." src="https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=480&fit=crop&dpr=1 600w, https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=480&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=480&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/528129/original/file-20230524-25-gch40s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Political concern scuttled a United Arab Emirates deal to manage U.S. ports and triggered greater power for the Committee on Foreign Investment.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/DDMFhAPS19Y">Damian Kamp for Unsplash.com</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>In <a href="https://www.nytimes.com/2006/03/10/politics/under-pressure-dubai-company-drops-port-deal.html">the aftermath of this controversy</a>, lawmakers passed the <a href="https://www.congress.gov/110/plaws/publ49/PLAW-110publ49.pdf">Foreign Investment and National Security Act</a> in 2007, giving Congress greater oversight of the committee to ensure that potential acquisitions were adequately reviewed. In addition, it required the committee to <a href="https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk">scrutinize all foreign investment deals</a> in which the pertinent overseas entity is either owned or controlled by a foreign power. </p>
<h2>National security concerns</h2>
<p>Over time, the Committee on Foreign Investment has been given more power to reflect and act on the political and economic concerns of the U.S.</p>
<p>China, for example, appears to have <a href="https://www.brookings.edu/essay/the-long-game-chinas-grand-strategy-to-displace-american-order/">global ambitions</a> to replace the <a href="https://www.foreignaffairs.com/united-states/why-american-power-endures-us-led-order-isnt-in-decline-g-john-ikenberry">U.S.-led world order</a>. As it gains geopolitical power, China has come under <a href="https://www.pewresearch.org/global/2023/04/12/americans-are-critical-of-chinas-global-role-as-well-as-its-relationship-with-russia/">increased scrutiny</a> by the U.S., with public support to <a href="https://www.pewresearch.org/global/2021/03/04/most-americans-support-tough-stance-toward-china-on-human-rights-economic-issues/">get tough with China on economic issues</a>. In response to these concerns, concrete steps have been taken by U.S. lawmakers to increase the scope of what the committee is able to do. </p>
<p>In 2018, <a href="https://www.whitehouse.gov/about-the-white-house/presidents/donald-j-trump/">President Donald Trump</a> signed the <a href="https://www.congress.gov/bill/115th-congress/house-bill/5841/text">Foreign Investment Risk Review Modernization Act</a>, giving the committee new powers over certain types of foreign investment that affect many <a href="https://illinoislawreview.org/print/vol-2023-no-2/superpower-rivalry-and-the-modernization-of-foreign-investment-risk-review/">Chinese investors</a>. In the two-year period after the passage of the act, transaction registrations from Chinese investors <a href="https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk">fell by 43%</a>.</p>
<p>In 2022, <a href="https://www.whitehouse.gov/administration/president-biden/">President Joe Biden</a> signed an executive order directing the committee to sharpen its <a href="https://www.reuters.com/world/us/biden-tells-foreign-investment-panel-screen-deals-data-cyber-risks-2022-09-15/">investigation of foreign investment deals</a> that could negatively affect cybersecurity, quantum computing, biotechnology and sensitive data. The Committee on Foreign Investment is now <a href="https://www.forbes.com/sites/harrybroadman/2022/09/30/cfius-under-biden-just-got-tougher/?sh=78e4d4931a49">more powerful</a> than it has ever been, and <a href="https://www.nytimes.com/2018/03/05/business/what-is-cfius.html">it is a gatekeeper</a> on major foreign investment deals. </p>
<p>The U.S. is not alone in examining foreign investment deals for national security implications. In recent times, the United Kingdom, the European Union and Australia have either created or strengthened existing regulations to <a href="https://www.cfr.org/backgrounder/what-happens-when-foreign-investment-becomes-security-risk">more carefully police</a> foreign investment deals, particularly those <a href="https://www.industryweek.com/the-economy/article/22026697/eu-set-to-tighten-rules-on-foreign-investment-to-fend-off-china">originating in China</a>. </p>
<p>It remains to be seen what the long-term implications of these expanding powers of the Committee on Foreign Investments in the U.S. will be.</p><img src="https://counter.theconversation.com/content/206279/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>President Joe Biden signed an executive order in 2022 tightening the rules for foreign investment in the US.Amitrajeet A. Batabyal, Distinguished Professor, Arthur J. Gosnell Professor of Economics, & Interim Head, Department of Sustainability, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2009532023-03-01T20:37:03Z2023-03-01T20:37:03ZA more hawkish China policy? 5 takeaways from House committee’s inaugural hearing on confronting Beijing<figure><img src="https://images.theconversation.com/files/512995/original/file-20230301-26-fkv0ly.jpg?ixlib=rb-1.1.0&rect=14%2C67%2C4977%2C3255&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bipartisan committee with Beijing in its sights.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/63de0b1c563247e89d38f83e447affdf?ext=true">AP Photo/J. Scott Applewhite</a></span></figcaption></figure><p><em>In a <a href="https://www.cnn.com/2023/02/28/politics/chinese-communist-party-committee-hearing/index.html">rare show of bipartisanship</a>, Republican and Democratic House members put on a united front as they probed how to respond to the perceived growing threat of China.</em></p>
<p><em>The inaugural hearing of the <a href="https://clerk.house.gov/committees/ZS00">Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party</a> comes at a delicate time – amid concerns in the U.S. over <a href="https://theconversation.com/chinas-spy-balloon-inflatable-eyes-in-the-sky-have-been-used-in-war-for-centuries-199268">Chinese espionage</a> and <a href="https://theconversation.com/china-why-beijing-has-decided-this-is-the-year-to-unify-with-taiwan-199726">tensions over Taiwan</a> and <a href="https://www.cnn.com/2023/02/28/politics/us-china-relations-ukraine-covid/index.html">China’s position on the Ukraine war</a>.</em></p>
<p><em>Michael Beckley, an <a href="https://facultyprofiles.tufts.edu/michael-beckley/about">expert on U.S.-China relations</a> at Tufts University, was among those watching on as witnesses gave evidence during the committee’s prime-time session. Here are his takeaways from what was discussed.</em></p>
<h2>1. The days of engagement are over</h2>
<p>What was abundantly clear from the lawmakers was the message that the <a href="https://foreignpolicy.com/2022/05/12/getting-china-wrong-engagement-change/">era of engagement</a> with China is long past its sell-by date.</p>
<p>Engagement had been the policy of successive government from <a href="https://www.nixonlibrary.gov/nixons-trip-china">Nixon’s landmark visit to China in 1972</a> onward. But there was a general acceptance among committee members that the policy is outdated and that it is time to adopt if not outright containment then certainly a more competitive policy. This would include “<a href="https://www.ft.com/content/5ca525f7-cb40-468a-a294-5938d11af6a5">selective decoupling</a>” – that is, the disentangling – of technology and economic interests, along with a more robust stance on confronting China’s military and providing a barrier to Chinese conquest in East Asia.</p>
<p>This proposed hardening of the U.S. policy is driven by internal developments in China as well as any perceived external threat. President Xi Jinping is viewed as having installed himself as “<a href="https://www.politico.com/news/2022/09/17/xi-jinping-chinas-dictator-for-life-00056783">dictator for life</a>” and created an Orwellian internal control system, complete with <a href="https://www.nbcnews.com/news/world/new-details-torture-cover-ups-china-s-internment-camps-revealed-n1270014">concentration camps</a> and <a href="https://www.wsj.com/articles/surveillance-cameras-made-by-china-are-hanging-all-over-the-u-s-1510513949">hundreds of millions of security cameras</a> all over the country; this is a regime that is only becoming more authoritarian as the years go by. It has dispelled any idea that with its economic opening China would also become a more open society.</p>
<p>And the committee appears to want to set course for the long term, not just for the near future. The general idea is U.S. policy over the next 10 years could determine the relationship between the U.S. and China for the next century. Rep. Mike Gallagher, the panel’s Republican chair, <a href="https://www.cbsnews.com/news/china-house-select-committee-hearing-tiktok-hr-mcmaster-matthew-pottinger/">said as much</a> in his opening comments: “This is an existential struggle over what life will look like in the 21st century – and the most fundamental freedoms are at stake.”</p>
<h2>2. Reframing the debate</h2>
<p>As Gallagher’s remarks suggest, the panel implied that U.S. issues with China do not boil down to just disagreement over a few issues. Rather, it was framed as a battle between two very different visions of society.</p>
<p>The committee is clearly modeled on the <a href="https://theconversation.com/us/topics/house-select-committee-to-investigate-the-january-6th-attack-on-the-united-states-capitol-108166">Jan. 6 House panel</a> – for example, by airing hearings in prime time and with dramatic testimony from witnesses. The idea seems to be that the issue is of such importance that to pursue it successfully the U.S. public needs to be educated, invested and mobilized. To that end, the inaugural session had testimony from an activist jailed for two years for supporting pro-democracy movements. The point was to get across the idea that the way of life that the U.S. is trying to promote – both at home and abroad – is antithetical to that of the Chinese Communist Party.</p>
<p>President Joe Biden has similarly framed his administration’s policy around the idea that this is an <a href="https://www.nytimes.com/2021/03/26/us/politics/biden-china-democracy.html">epic struggle between democracy and autocracy</a>. Indeed, in some ways Biden has been more hawkish than previous presidents on China. In terms of tightening economic restrictions on China and stressing U.S. concerns over China’s human rights record, Biden has <a href="https://foreignpolicy.com/live/is-americas-china-policy-too-hawkish/">picked up the baton</a> from his predecessors and run with it.</p>
<p>But the panel was keen to stress this as a bipartisan push for a more hawkish policy. And this is important. It gives the panel’s recommendations more heft, especially as the U.S. heads into the 2024 presidential race, during which both parties will be looking to stress how tough they are on the U.S.’s adversaries.</p>
<h2>3. Confronting China’s leaders, not its people</h2>
<p>Although framed as a battle between democracy and autocracy, the panel appears conscious that the debate shouldn’t be framed as a clash of Western and Asian civilizations. </p>
<p>With anti-Asian sentiment having risen during the COVID-19 pandemic, U.S. lawmakers are walking a fine line here – they will need to focus any criticism on Chinese leaders rather than its people. Gallagher <a href="https://www.cnn.com/2023/02/28/politics/chinese-communist-party-committee-hearing">made this point</a>, noting: “We must constantly distinguish between the Chinese Communist Party and the Chinese people themselves, who have always been the party’s primary victims.”</p>
<p>This balancing act may be more difficult in future hearings when issues of Chinese students at U.S. universities, immigration and cooperation with China on certain scientific issues come up. That is when they will need to weigh concerns over Chinese espionage against not coming across as anti-Chinese visitors and immigrants.</p>
<h2>4. Reshaping policy on three fronts</h2>
<p>Although this first hearing was very much a table-setter, there were three broad policy recommendations implicit in the testimony:</p>
<ul>
<li><p><strong>Taiwan</strong> – The panel heard evidence suggesting that the U.S. needs to mobilize for the potential of a hot war with China over the island of Taiwan, the status of which is contested. Former National Security Adviser H.R. McMaster <a href="https://www.foxnews.com/politics/mcmaster-warns-next-two-years-could-dangerous-period-us-china-taiwan-during-debut-china-cmte-hearing">told the panel</a> that in regards to China, the next two years would be a particularly “dangerous” period. He suggested that U.S. capabilities to deter an invasion of Taiwan were not adequate. Meanwhile, there were mentions of a backlog in weapon sales to Taiwan. And as the war in Ukraine has underscored, there is an imperative to get weapons on the ground before any shooting starts.</p></li>
<li><p><strong>Economic competitiveness</strong> – The panel heard evidence from the U.S. National Association of Manufacturers pointing out how China had stacked global trade in its favor through unfair subsidies and corporate espionage. To improve America’s competitiveness, the panel could look at recommending the expansion of export controls or tax reforms to make U.S. products more competitive. The U.S. is also eyeing a strategic decoupling with China on the economic front, which is encouraging U.S. businesses to divest from Chinese operations and restricting Chinese businesses operating in the U.S., such as the social media platform TikTok.</p></li>
<li><p><strong>Human rights</strong> – The committee made it clear that human rights should be front and center in the U.S. China policy going forward. The hearing repeatedly stressed that this was not just an economic and security disagreement but a clash of values.</p></li>
</ul>
<h2>5. A boilerplate response from Beijing</h2>
<p>China’s response to the committee’s inaugural hearing was standard. </p>
<p>In a statement, the <a href="https://apnews.com/article/china-criticizes-new-congress-committee-ae52d13b740dee3495c7ba4e41f520a8">foreign ministry in Beijing</a> said it rejected Washington’s attempt to engage in what it called a “Cold War” mindset. Chinese media also tried to make it sound as if anti-China policy is driven by special interests, including defense contractors and members of the Taiwanese diaspora.</p>
<p>The narrative that the U.S. is warmongering was aided by the interjection of two protesters from the <a href="https://www.washingtontimes.com/news/2023/feb/28/code-pink-protesters-disrupt-inaugural-house-china/">Code Pink activist group</a>, who held up a sign during the hearing stating that “China is not our enemy.”</p><img src="https://counter.theconversation.com/content/200953/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Beckley does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>US lawmakers heard testimony that suggests the era of engagement with China is over. Rather, policy may be hardening.Michael Beckley, Associate Professor of Political Science, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1980562023-01-18T16:08:18Z2023-01-18T16:08:18ZWhy China’s shrinking population is a big deal – counting the social, economic and political costs of an aging, smaller society<figure><img src="https://images.theconversation.com/files/505050/original/file-20230118-14-dfw8cm.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3995%2C2667&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will an aging, shrinking population put the brakes on economic growth?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/an-elderly-man-rides-a-tricycle-on-a-street-in-hangzhou-news-photo/1246295312?phrase=china%20population&adppopup=true">CFOTO/Future Publishing via Getty Images.</a></span></figcaption></figure><p>Throughout much of recorded human history, China has <a href="http://afe.easia.columbia.edu/special/china_1950_population.htm">boasted the largest population in the world</a> – and until recently, by some margin.</p>
<p>So news that the <a href="https://www.reuters.com/world/china/chinas-population-shrinks-first-time-since-1961-2023-01-17/">Chinese population is now in decline</a>, and will sometime later this year be <a href="https://www.reuters.com/world/asia-pacific/india-set-overtake-china-worlds-most-populous-nation-2023-01-17/">surpassed by that of India</a>, is big news even if long predicted. </p>
<p>As a <a href="https://www.faculty.uci.edu/profile.cfm?faculty_id=5098">scholar of Chinese demographics</a>, I know that the figures released by Chinese government on Jan. 17, 2023, showing that for the <a href="https://www.asiaone.com/china/chinas-population-shrinks-first-time-1961">first time in six decades</a>, deaths in the previous year outnumbered births is no mere blip. While that previous year of shrinkage, 1961 – during the <a href="http://news.bbc.co.uk/1/shared/spl/hi/in_depth/china_politics/key_people_events/html/3.stm">Great Leap Forward</a> economic failure, in which <a href="https://www.asianstudies.org/publications/eaa/archives/chinas-great-leap-forward/#:%7E:text=From%201960%E2%80%931962%2C%20an%20estimated,this%20disaster%20was%20largely%20preventable.">an estimated 30 million people died of starvation</a> – represented a deviation from the trend, 2022 is a pivot. It is the onset of what is likely to be a long-term decline. By the end of the century, the Chinese population is <a href="https://population.un.org/wpp/">expected to shrink by 45%</a>, according to the United Nations. And that is under the assumption that China maintains its current fertility rate of around 1.3 children per couple, which it may not.</p>
<p><iframe id="jbJAh" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/jbJAh/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>This decline in numbers will spur a trend that already concerns demographers in China: a <a href="https://doi.org/10.1016/S0140-6736(22)02410-2">rapidly aging society</a>. By 2040, around a quarter of the Chinese population is <a href="https://globalcoalitiononaging.com/wp-content/uploads/2019/01/China%E2%80%99s-Demographic-Outlook.pdf">predicted to be over the age of 65</a>.</p>
<p>In short, this is a seismic shift. It will have huge symbolic and substantive impacts on China in three main areas. </p>
<h2>Economy</h2>
<p>In the space of 40 years, China has largely completed a historic transformation from an agrarian economy to one <a href="https://www.stlouisfed.org/publications/regional-economist/april-2016/chinas-rapid-rise-from-backward-agrarian-society-to-industrial-powerhouse-in-just-35-years">based on manufacturing and the service industry</a>. This has been accompanied by <a href="https://www.stlouisfed.org/on-the-economy/2018/january/income-living-standards-china">increases in the standard of living and income levels</a>. But the Chinese government has long recognized that the country can no longer rely on the labor-intensive economic growth model of the past. Technological advances and competition from countries that can provide a cheaper workforce such as Vietnam and India have rendered this old model largely obsolete.</p>
<p>This historical turning point in China’s population trend serves as a further wake-up call to move the country’s model more quickly to a post-manufacturing, post-industrial economy – an aging, shrinking population does not fit the purposes of a labor-intensive economic model.</p>
<p>As to what it means for China’s economy, and <a href="https://www.usatoday.com/story/news/world/2023/01/17/china-population-decline-birth-rate-global-economy-impact/11066270002/">that of the world</a>, population decline and an aging society will certainly provide Beijing with short-term and long-term challenges. In short, it means there will be fewer workers able to feed the economy and spur further economic growth on one side of the ledger; on the other, a growing post-work population will need potentially costly support.</p>
<p>It is perhaps no coincidence then that 2022, as well as being a pivotal year for China in terms of demographics, also saw one of the worst economic performances <a href="https://www.reuters.com/world/china/chinas-economy-slows-sharply-q4-2022-growth-one-worst-record-2023-01-17/">the country has experienced since 1976</a>, according to data released on Jan. 17.</p>
<h2>Society</h2>
<p>The rising share of elderly people in China’s population is more than an economic issue – it will also reshape Chinese society. Many of these elderly people only have one child, due to the <a href="https://www.scmp.com/economy/china-economy/article/3135510/chinas-one-child-policy-what-was-it-and-what-impact-did-it">one-child policy</a> in place for three and a half decades <a href="https://www.brookings.edu/articles/the-end-of-chinas-one-child-policy/">before being relaxed in 2016</a>. </p>
<p>The large number of aging parents with only one child to rely on for support will likely impose severe constraints – not least for the elderly parents, who will need financial support. They will also need emotional and social support for longer as a result of <a href="https://www.macrotrends.net/countries/CHN/china/life-expectancy">extended life expectancy</a>.</p>
<p>It will also impose constraints on those children themselves, who will need to fulfill obligations to their career, provide for their own children and support their elderly parents simultaneously.</p>
<p>Responsibility will fall on the Chinese government to provide adequate health care and pensions. But unlike in Western democracies that have by now had many decades to develop social safety nets, the speed of the demographic and economic change in China has meant that Beijing struggled to keep pace.</p>
<p>As China’s economy <a href="https://theconversation.com/jiang-zemin-propelled-chinas-economic-rise-in-the-world-leaving-his-successors-to-deal-with-the-massive-inequality-that-followed-195675">underwent rapid growth after 2000</a>, the Chinese government responded by investing tremendously in <a href="https://files.eric.ed.gov/fulltext/EJ752324.pdf">education</a> and <a href="https://doi.org/10.1186/1475-9276-12-40">health care facilities</a>, as well as <a href="https://www.refworld.org/pdfid/5301df5d4.pdf">extending universal pension coverage</a>. But the demographic shift was so rapid that it meant that political reforms to improve the safety net were always playing catch-up. Even with the vast expansion in coverage, the country’s health care system is still highly inefficient, unequally distributed and inadequate given the growing need.</p>
<p>Similarly, social pension systems are <a href="https://doi.org//10.1016/j.jeoa.2019.100194">highly segmented and unequally distributed</a>.</p>
<h2>Politics</h2>
<p>How the Chinese government responds to the challenges presented by this dramatic demographic shift will be key. Failure to live up to the expectations of the public in its response could result in a crisis for the Chinese Communist Party, whose legitimacy is tied closely to economic growth. Any economic decline could have severe consequences for the Chinese Communist Party. It will also be judged on how well the state is able to fix its social support system.</p>
<p>Indeed, there is already a strong case to be made that the Chinese government has moved too slowly. The one-child policy that <a href="https://theconversation.com/the-costs-and-benefits-of-chinas-one-child-policy-20467">played a significant role</a> in the slowing growth, and now decline, in population was a government policy for more than three decades. It has been known since the 1990s that <a href="https://data.worldbank.org/indicator/SP.DYN.TFRT.IN?locations=CN">the Chinese fertility rate was too low</a> to sustain current population numbers. Yet it was only in 2016 that Beijing acted and relaxed the policy to allow more couples to have a second, and <a href="https://www.npr.org/2021/05/31/1001846355/confronted-by-aging-population-china-allows-couples-to-have-three-children">then in 2021 a third</a>, child.</p>
<p>This action to spur population growth, or at least slow its decline, came too late to prevent China from soon losing its crown as the world’s largest nation. Loss of prestige is one thing though, the political impact of any economic downturn resulting from a shrinking population is quite another.</p>
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Read more:
<a href="https://theconversation.com/chinas-population-is-now-inexorably-shrinking-bringing-forward-the-day-the-planets-population-turns-down-198061">China's population is now inexorably shrinking, bringing forward the day the planet's population turns down</a>
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<img src="https://counter.theconversation.com/content/198056/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Feng Wang does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For the first time since 1961, deaths in China have outpaced births – and unlike that one-year decline, the downward trend is likely to continue.Feng Wang, Professor of Sociology, University of California, IrvineLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1958722022-12-06T17:13:26Z2022-12-06T17:13:26ZChinese economic growth may never recover from COVID – here’s why<figure><img src="https://images.theconversation.com/files/499091/original/file-20221205-21-pidw6b.jpg?ixlib=rb-1.1.0&rect=0%2C6%2C4135%2C2852&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bronze bull outside the stock exchange building in Shanghai, China.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghai-july-22-bronze-bull-on-116508334">Dmitri Ometsinsky / Shutterstock</a></span></figcaption></figure><p>Many <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-8866/#:%7E:text=Economic%20impact%20to%20date&text=GDP%20declined%20by%209.7%25%20in,two%20months%20earlier%20in%20February.">countries</a> have had to <a href="https://www.brookings.edu/research/ten-facts-about-covid-19-and-the-u-s-economy/">navigate</a> the balancing act of keeping the economy alive versus protecting citizens from COVID in recent years. In China, patience with its <a href="https://www.bbc.co.uk/news/59882774">zero-COVID policy</a> – one of the world’s toughest strategies for dealing with the pandemic – are wearing thin among workers and students. Sporadic protests have erupted all over China in recent weeks, <a href="https://theconversation.com/chinese-protests-are-about-more-than-covid-student-discontent-has-fuelled-the-biggest-movement-since-tiananmen-square-195515">triggered by the deaths</a> of ten people in a fire in an apartment block in Ürümchi, Xinjiang <a href="https://apnews.com/article/china-fires-6a1b6902e6ccf87e064f1232045a2848">in November</a>.</p>
<p>But even with signs that <a href="https://www.theguardian.com/world/2022/dec/05/covid-is-weakening-china-state-media-claims-as-major-cities-lift-lockdowns">restrictions are starting to relax</a> across the country, the impact on the economy will not be as straightforward as the Chinese government might hope.</p>
<p>The conundrum for China is that the state has promised its citizens safety from the virus through its zero-COVID policy, which has led to <a href="https://www.theguardian.com/world/2022/dec/02/vaccines-key-china-zero-covid-exit-still-a-challenge">large sections of the vulnerable population</a> being unvaccinated. No government wants to concede it may have been wrong about something, but it’s particularly important for the credibility of <a href="https://web.archive.org/web/20171029212022id_/http://www.tandfonline.com/doi/pdf/10.1080/09668136.2016.1267714">the social contract</a> between the Chinese Communist Party and the people. The authorities guarantee social and economic stability and the freedom to get rich, in exchange for absolute power. </p>
<p>But with the slowing of China’s GDP growth, rising graduate unemployment (<a href="https://www.statista.com/statistics/1244339/surveyed-monthly-youth-unemployment-rate-in-china/">youth unemployment reached 20% in July</a>), and increasing economic hardship, China’s social contract is <a href="https://www.nbcnews.com/think/opinion/chinese-protesters-broken-social-contract-caused-by-covid-policy-rcna59418">starting to unravel</a>.</p>
<h2>Chinese government decision making</h2>
<p>The upside of authoritarian governance is that decisions can be made quickly in times of crisis. The Chinese government was quick to react to the 2008 global financial crisis with a <a href="https://www.oecd-ilibrary.org/governance/the-fiscal-stimulus-programme-and-public-governance-issues-in-china_budget-11-5kg3nhljqrjl">4 trillion yuan (£470 billion) fiscal package</a>. After a sharp fall in GDP in 2008, the economy grew by 8.7% in 2009 and over 10% in 2010. The <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN">rate of growth</a> then settled at a healthy but sustainable 6.8%.</p>
<p>When dealing with the pandemic, after the initial confusion about its source and apportionment of blame, the government acted swiftly to lock down the economy and flatten the curve. The result was that <a href="https://ourworldindata.org/explorers/coronavirus-data-explorer">only 5,233 COVID deaths had been reported</a> as of December 2022, compared to 1.1 million in the US.</p>
<p>But daily COVID cases in China were at <a href="https://www.google.com/search?q=daily+covid+cases+china&oq=daily+covid+cases+china&aqs=chrome..69i57j0i22i30.3680j1j4&sourceid=chrome&ie=UTF-8">37,828 on November 30 2022</a>. This is higher than the peak in April when the <a href="https://www.reuters.com/markets/commodities/shanghai-economy-hit-all-sides-april-by-covid-lockdown-2022-05-20/">economically damaging lockdown in Shanghai</a> was imposed. And GDP fell by 2.6% in the second quarter of this year before recovering with a 3.6% rise in the next quarter.</p>
<p>So clearly there is a trade-off to consider between the economic and social cost of China’s zero-COVID policy and the health benefits for the vulnerable. This means it’s important to consider the short-term cost of the lockdown, as well as any long-term consequences.</p>
<p>The immediate costs have been the disruption to production and global supply chains, but the domestic service sector was also particularly hard hit. The chart below shows how economic growth has moved from a steady quarterly rate of 1.7% following the 2008 global financial crisis, to a collapse and recovery in 2020 and a second downturn in quarter two of 2022.</p>
<p><strong>Growth in China from the global financial crisis to COVID</strong></p>
<figure class="align-center ">
<img alt="Line graph showing quarterly GDP for China broadly level until a significant drop in 2020, following by a sharp rise and then uneven performance." src="https://images.theconversation.com/files/499080/original/file-20221205-22-mara4v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/499080/original/file-20221205-22-mara4v.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/499080/original/file-20221205-22-mara4v.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/499080/original/file-20221205-22-mara4v.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/499080/original/file-20221205-22-mara4v.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/499080/original/file-20221205-22-mara4v.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/499080/original/file-20221205-22-mara4v.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="source" href="https://fred.stlouisfed.org/series/CHNGDPNQDSMEI">Author provided, data from National Bureau of Statistics of China.</a></span>
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<p>The likely long-term economic impact is the uncertainty caused by policy changes, which has affected domestic and foreign investment and caused supply chain disruption. Real GDP per capita (real GDP divided by the population) is projected to grow at 6.3% a year in China and, according to my calculations using <a href="https://fred.stlouisfed.org/series/POPTOTCNA647NWDB">Federal Reserve Economic Data (FRED)</a> and <a href="https://data.worldbank.org/indicator/SP.POP.TOTL?locations=CN">population figures from the World Bank</a>, this would put the cost of long-term lost output at a massive 72% of real GDP per capita relative to 2018 GDP.</p>
<p>This is a huge loss for the Chinese economy and <a href="https://www.imf.org/en/Blogs/Articles/2018/03/21/the-economic-scars-of-crises-and-recessions">research shows</a> that <a href="https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Growth-Dynamics-The-Myth-of-Economic-Recovery-18392">output loss</a> on this scale is <a href="https://www.aeaweb.org/articles?id=10.1257/aer.98.1.439">rarely recovered</a> in the long term. Foreign firms are <a href="https://techwireasia.com/2022/11/chinas-zero-covid-policy-forces-apple-to-go-for-a-backup-supplier-in-india/">rethinking their supply chain arrangements</a> and the all-important human capital brought by foreign workers to China has been <a href="https://www.intereconomics.eu/contents/year/2022/number/5/article/goodbye-china-what-do-fewer-foreigners-mean-for-multinationals-and-the-chinese-economy.html">heading for the exit</a>. As with after the financial crisis, the pandemic could lead to a new, lower trend growth rate that will only emerge with time.</p>
<h2>Other economic headwinds</h2>
<p>Of course, repositioning supply takes time and China is secure in the knowledge it remains the workshop of the world for now. But there are other headwinds: <a href="https://www.dailyfx.com/usd-jpy/china-s-debt-to-gdp-ratio-climbs-as-beijing-maintains-unproductive-investment.html">debt to GDP rose to 270% in 2020</a> driven by credit advances to real estate developers and also to local governments for infrastructure spending.</p>
<p>Central government debt as a percentage of GDP has also risen from 20% in 1998 to nearly 70% in 2020. Government debt is <a href="https://www.statista.com/statistics/270329/national-debt-of-china-in-relation-to-gross-domestic-product-gdp/">set to rise to 78% in 2022</a>. These are large figures for an emerging economy. And if China is to keep to its promise of protecting its vulnerable citizens, higher spending on health for its ageing population could cause this debt ratio to rise further.</p>
<p>The pandemic has raised government spending in China, as it has done in all countries. This has created business opportunities, but has also highlighted a difference between local government decision making and central government edicts. Sometimes, an overcautious regional response goes beyond the guidelines set by central government – for example, when provinces enforce longer lockdowns than the recommended five days, or impose centralised quarantines rather than asking people to stay at home. This also affects the economy and must be taken into account by China’s government.</p>
<p>But of course, this is not just about economic costs, people’s wellbeing and health must also be considered. And things may even be worse in China than observers realise – <a href="https://www.journals.uchicago.edu/doi/10.1086/720458">recent research</a> suggests that autocratic governments can overstate economic growth by as much as 35%.</p>
<p>China’s anti-COVID protests are more than about COVID. They are expressions of frustration with a system that is opaque and unaccountable. Relaxing the restrictions is a step in the right direction, the effect depends very much on the decisions the government makes from now on.</p><img src="https://counter.theconversation.com/content/195872/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kent Matthews received funding from ESRC-Newton to examine the role of Shadow Banking in China. </span></em></p>Will China’s government find a balance between protecting its citizens and supporting its economy.Kent Matthews, Professor of Banking and Finance, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1956752022-12-01T14:06:51Z2022-12-01T14:06:51ZJiang Zemin propelled China’s economic rise in the world, leaving his successors to deal with the massive inequality that followed<figure><img src="https://images.theconversation.com/files/498354/original/file-20221130-22-odddv.jpg?ixlib=rb-1.1.0&rect=9%2C551%2C2809%2C1485&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Jiang Zemin oversaw the economic transformation of China.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/chinese-pres-jiang-zemin-at-state-visit-arrival-ceremony-on-news-photo/50410308?phrase=jiang%20zemin&adppopup=true">Diana Walker/Getty Images</a></span></figcaption></figure><p>By the summer of 1989, a series of problems were threatening China’s stability. <a href="https://www.marketplace.org/2019/06/05/economics-helped-spur-tiananmen-square-protests/">Soaring inflation</a> was undermining the economy at home while the <a href="https://www.bbc.com/news/world-asia-48445934">violent suppression of Tiananmen Square demonstrations</a> had left it largely a pariah state abroad. Yet within a few years the nation rebounded – beginning two decades of high economic growth, <a href="https://www.wto.org/english/thewto_e/countries_e/china_e.htm">membership in the largest trading club in the world</a> and <a href="https://www.reuters.com/article/us-china-tiananmen-timeline-landmarks/timeline-chinas-post-tiananmen-re-emergence-onto-the-world-idUSKCN1SX0IE">international acceptance on the global stage</a>.</p>
<p>That transition came thanks in no small part to an underestimated, Soviet-trained electrical engineer – former Chinese President Jiang Zemin, who <a href="https://www.cnn.com/2022/11/30/china/jiang-zemin-china-president-obit-intl-hnk/index.html">died on Nov. 30, 2022, at the age of 96</a>.</p>
<p>I <a href="https://www.hks.harvard.edu/faculty/edward-cunningham">first traveled to and studied</a> in China in 1992. At that time, the still powerful former leader Deng Xiaoping was publicly criticizing Jiang’s more conservative approach to the economy in a <a href="https://doi.org/10.2307/2645086">series of visits and talks he gave</a> during what became known as Deng’s “Southern Tour.” Eventually Jiang fell in line and supported Deng’s liberalization measures and the idea of economic transformation. Yet while Jiang’s subsequent policies laid a strong foundation for China’s growth, they also likely sowed the seeds of excess that set the stage for current President Xi Jinping’s rise.</p>
<h2>The grand experiment</h2>
<p>Jiang <a href="https://www.nytimes.com/2022/11/30/world/asia/jiang-zemin-dead.html">was picked to lead the country</a> as general secretary in June 1989, after the ouster of former leader Zhao Ziyang for Zhao’s conciliatory approach towards the Tiananmen Square protesters.</p>
<p>Within three years Jiang embarked on a grand experiment together with Deng and then-Vice Premier Zhu Rongji, which required Jiang to do what others had been unable or unwilling to do: force the <a href="https://www.brookings.edu/opinions/zhu-rongjis-promise/">restructuring of inefficient state-owned enterprises</a> in a wide range of sectors. This resulted in the <a href="https://www.ft.com/content/a9796c68-e108-11e5-9217-6ae3733a2cd1">laying off of millions of workers</a> who had expected such jobs to be lifelong “iron rice bowls.”</p>
<p>From 1998 to 2002, approximately <a href="https://www.reuters.com/article/iduskbn2o106c">34 million people were fired</a> as China privatized hundreds of state-owned enterprises and shuttered thousands more.</p>
<p>This concerted effort proved an important and necessary step toward <a href="https://www.iatp.org/sites/default/files/China_and_the_WTO_The_Politics_Behind_the_Agre.htm">preparing Chinese companies for more direct market competition</a> and integration with the world economy by the turn of the century.</p>
<h2>Ascending on the world stage</h2>
<p>Jiang’s real influence began upon <a href="http://www.cnn.com/WORLD/9702/19/deng.obit/">Deng’s death</a> in February 1997.</p>
<p>In July of that year, he presided over the <a href="https://www.washingtonpost.com/world/interactive/2022/hong-kong-handover-25-anniversary-photos/">handover of Hong Kong</a> to the mainland. He then proved an able leader during the macroeconomic storm of the Asian financial crisis that began that same month. China quickly recovered and by 2001 had both <a href="https://www.brookings.edu/testimonies/issues-in-chinas-wto-accession/">acceded to the World Trade Organization</a> and won the <a href="https://www.nytimes.com/2001/07/14/sports/olympics-beijing-wins-bid-for-2008-olympic-games.html">bid to host the 2008 Summer Olympic Games</a>.</p>
<figure class="align-center ">
<img alt="Two men in suits shake hands" src="https://images.theconversation.com/files/498484/original/file-20221201-6668-q3l6s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498484/original/file-20221201-6668-q3l6s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=460&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498484/original/file-20221201-6668-q3l6s5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=460&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498484/original/file-20221201-6668-q3l6s5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=460&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498484/original/file-20221201-6668-q3l6s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=578&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498484/original/file-20221201-6668-q3l6s5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=578&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498484/original/file-20221201-6668-q3l6s5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=578&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Under Jiang, China was embraced by the international community.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/chinese-president-jiang-zemin-greets-us-president-bill-news-photo/1245223707?phrase=jiang%20zemin%20WTO&adppopup=true">AFP via Getty Images</a></span>
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<p>By 2002 China’s economy had <a href="https://www.nationalbanken.dk/en/publications/Documents/2003/12/2003_MON4_china61.pdf">grown to represent over 4% of the global economy</a>. Jiang sought to reinforce such economic dynamism through more formal means, and revised the constitution that same year to formally <a href="https://doi.org/10.1016/j.chieco.2020.101431">allow corporate elite and private business entrepreneurs</a> into the Chinese Communist Party.</p>
<h2>Growing inequality</h2>
<p>This economic liberalization was paired with <a href="https://www.lincolninst.edu/sites/default/files/pubfiles/china-housing-reform-and-outcomes-chp.pdf">housing privatization policies</a>. Combined, they spurred the <a href="https://www.jstor.org/stable/10.7864/j.ctt6wpd8c">creation of a burgeoning middle class</a> and large-scale private wealth generation.</p>
<p>What was missing, though, was adequate regulation to provide a check on the often-wild results of unbridled growth. <a href="https://www.reuters.com/breakingviews/jiang-zemin-made-china-richer-more-unequal-2022-11-30/">Economic inequalities grew dramatically</a> in the 1990s and on through 2005, when Jiang formally relinquished his final title as the head of the military. </p>
<p>This created large social fissures, as rampant corruption began to permeate central and local governments, crime rates rose, and even the <a href="https://doi.org/10.1017/S0305741004000670">military itself got into business schemes</a>. Local governments resorted to rafts of arbitrary and extra-budgetary fees levied on citizens to pay for critical public goods and services, as well as infrastructure, which had eroded over time.</p>
<h2>Return of the state</h2>
<p>Jiang’s successors needed to respond to the problems his policies created. They did so by elevating the role of the state in social and economic life, promoting what they described as a more “<a href="https://www.nottingham.ac.uk/iaps/documents/cpi/briefings/briefing-1-chinas-11th-five-year-plan.pdf">balanced development</a>” model.</p>
<p>Hu Jintao, who succeeded Jiang, <a href="https://doi.org/10.1080/00927670903355196">focused resources and policy priorities</a> on transferring more resources to the poorer regions of China, shoring up a weak medical and social insurance system and promulgating more egalitarian measures as part of a “putting people first” program. In just five years, the <a href="https://doi.org/10.1017/S0305741019000377">percentage of China’s population covered by health insurance</a> more than doubled, from 43% in 2006 to 95% in 2011.</p>
<p>Hu also <a href="https://www.bloomberg.com/news/features/2018-12-15/president-xi-jinping-s-next-moves-dictate-china-s-economic-future">moderated Jiang’s growth at any cost focus</a>, pushing through policies that provided assistance to groups who had not benefited as much from China’s economic reforms, such as <a href="https://doi.org/10.1017/S0305741019000377">migrants, the rural poor and laid-off urban workers</a>.</p>
<p>Xi has provided a <a href="https://www.npr.org/sections/parallels/2017/10/24/559004647/what-is-the-motivation-behind-chinese-president-xi-jinpings-anti-corruption-driv">more pointed response</a> to what he likely views as the costs of Jiang’s governance. While continuing the shift toward greater centralization, he has deepened and widened the state’s role in not only the economy but other spheres of Chinese life, such as society and the military.</p>
<h2>A smooth transition?</h2>
<p>But Jiang’s legacy is more than just soaring economic growth and staggering inequality. It is also important to note that the end of his leadership marked China’s <a href="https://thechinaproject.com/2021/09/22/jiang-zemin-and-the-prcs-first-orderly-transfer-of-power/">first orderly transition of political power</a> since the founding of the People’s Republic of China in 1949. </p>
<p>That precedent was, and continues to be, important. While he initially maintained some influence for several years after formally stepping down as general secretary, Jiang’s most singular legacy may be showing the world – and the Chinese people – that smooth transitions of power were indeed possible. Whether they still are possible remains an open question.</p><img src="https://counter.theconversation.com/content/195675/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Edward Cunningham does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Jiang oversaw China’s reemergence on the global stage, and sustained growth at home. But his policies also set the scene for excess and the growth of President Xi Jinping.Edward Cunningham, Director of Ash Center China Programs, Harvard Kennedy SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1857412022-10-14T15:01:01Z2022-10-14T15:01:01ZHow financial technology can discriminate against people speaking minority dialects – new evidence from China<figure><img src="https://images.theconversation.com/files/486575/original/file-20220926-19-h9ub5t.jpg?ixlib=rb-1.1.0&rect=275%2C128%2C5858%2C3099&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/asia-startup-sme-woman-people-happy-2134331077">Chaay_Tee / Shutterstock</a></span></figcaption></figure><p>In the UK, studies have repeatedly found evidence of <a href="https://theconversation.com/working-class-and-ethnic-minority-accents-in-south-east-england-judged-as-less-intelligent-new-research-162886">accentism</a>. Prejudice based on someone’s way of speaking can affect people in the classroom, the <a href="https://theconversation.com/british-people-still-think-some-accents-are-smarter-than-others-what-that-means-in-the-workplace-126964">office</a> and beyond. </p>
<p><a href="https://www.tandfonline.com/doi/full/10.1080/1351847X.2021.2007496">Our research</a> of dialects and peer-to-peer lending in China found that this kind of linguistic discrimination can also influence someone’s access to finance. Specifically, that accent bias, communication barriers or dialect discrimination may lead to borrowers who speak minority dialects receiving smaller loans and having higher default rates.</p>
<p><a href="https://www.bankofengland.co.uk/research/fintech">Financial technology</a> (fintech for short) is the technology and innovation that aims to compete with traditional financial institutions. The emerging industry is an alternative to banks and personal loans, allowing people to lend or borrow money from one another directly. Based online, these companies have <a href="https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2016.2531">lower transaction costs</a> and complement the shortcomings of traditional banking for <a href="https://academic.oup.com/rfs/article/32/5/1900/5427773">small loans</a>.</p>
<p>Discrimination is well documented in traditional financial <a href="https://theconversation.com/how-ethnic-minorities-face-higher-levels-of-financial-exclusion-71960#:%7E:text=Our%20analysis%20found%20that%20ethnic,lower%20compared%20with%20white%20households.">services</a> and there have been ongoing discussions about <a href="https://technation.io/about-us/fintech-delivery-panel/ethnic-diversity-in-uk-fintech/#introduction">diversity</a> in the sector. However, these have focused on more obvious forms of prejudice, such as ethnic or racial bias, while our study shows that this could be broader and more subtle, in the form of dialect discrimination. </p>
<p>People using different dialects often have <a href="https://www.jstor.org/stable/4168582?seq=1">distinct cultural habits</a>, sometimes almost as if they are from different countries. So, if there are multiple dialects in an area, this can lead to communication barriers and, ultimately affect borrowers with different dialects.</p>
<p>China is one of the largest fintech credit markets, with around <a href="https://www.oecd.org/competition/digital-disruption-in-banking-and-its-impact-on-competition-2020.pdf">2,500 platforms</a> supporting peer-to-peer lending. There are 17 major dialects and 105 sub-dialects spoken in the 300 cities in <a href="https://www.taylorfrancis.com/books/mono/10.4324/9780429309588/chinese-mosaic-peoples-provinces-china-leo-moser">China</a>. The pronunciation and grammar in different provinces has developed to an extent that variations of spoken language are often mutually incomprehensible. </p>
<p>My colleagues Zhongfei Chen, Ming Jin, Youwei Li and I <a href="https://www.tandfonline.com/doi/full/10.1080/1351847X.2021.2007496">examined 210,841 historical loan records</a> from one of China’s first online lending platforms, covering the period from 2013-2018. We used this data to explore the links between dialect diversity (the number of dialects spoken in a city) and borrower behaviour.</p>
<p>We found that borrowers from areas where more minority dialects are used received smaller loans when using the fintech platform we studied. They also had higher default rates, compared with borrowers from cities with less dialect diversity. This was the case when comparing people with similar income levels and other characteristics like gender, age, education and credit rating.</p>
<h2>Financial literacy – lost in translation?</h2>
<p>In the platform we examined, borrowers apply for a loan and the company reviews the application before deciding the final loan amount and interest rate. The lending platform plays the role of a third party and does not want borrowers to default. As a result, they treat loan applicants with caution. </p>
<p>With some transactions between users, the approval process all takes place online. But borrowers of certain types of loans (such as those where the platform acts as guarantor) must also pass an in-person review. Reviewers collect data on gender, marital status, work, education, age and income. It is in these reviews, we believe, that accent bias and cultural discrimination can work against borrowers who speak minority dialects.</p>
<figure class="align-center ">
<img alt="A sheet of Chinese yuan cash being printed" src="https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=448&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=448&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486577/original/file-20220926-12-gcijga.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=448&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">In examining data from a Chinese peer to peer lending company, researchers found evidence of dialect discrimination.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/concept-image-showing-sheet-new-chinese-1771815803">Inked Pixels / Shutterstock</a></span>
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<p>The link between access to finance and dialect diversity might be due to different levels of <a href="https://gflec.org/wp-content/uploads/2015/11/3313-Finlit_Report_FINAL-5.11.16.pdf">financial literacy</a> and consequently, communication barriers among different dialect users. There is indeed <a href="https://www.sciencedirect.com/science/article/pii/S0167268118300763">evidence</a> linking language to financial literacy. Low levels of financial literacy in China (about 28% of adults, compared to the UK’s 67%), could make communication about loans and finances more difficult among different language users. </p>
<p>The results of our research aren’t entirely surprising. Language and dialect <a href="https://www.thoughtco.com/dialect-prejudice-term-4052385">discrimination</a> are longstanding problems in <a href="https://www.cambridge.org/core/journals/language-in-society/article/linguistic-capital-in-taiwan-the-kmts-mandarin-language-policy-and-its-perceived-impact-on-language-practices-of-bilingual-mandarin-and-taigi-speakers/6F5F262FB1D3F8F3E6F7CCF3BD6F9C07">China</a>. And previous studies have shown that ethnic minorities often experience economic <a href="https://link.springer.com/article/10.1023/B:REAL.0000027199.22889.65">disadvantages</a> compared to other groups.</p>
<p>But our findings show how fintech platforms create a mechanism through which discrimination against minority dialects can arise. This is especially important in a country with such vast income inequality as China. Linguistic differences may be getting in the way of loans flowing to those who need them most.</p><img src="https://counter.theconversation.com/content/185741/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Athanasios Andrikopoulos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research into Chinese peer to peer lending data shows that borrowers from regions with more minority dialects receive smaller loans.Athanasios Andrikopoulos, Senior Lecturer (Associate Professor) in Finance, University of HullLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1794032022-03-18T10:52:13Z2022-03-18T10:52:13ZUkraine: why China is not yet bailing out Russia<p>As Russia’s war in Ukraine continues, China’s role has been thrown into sharp relief. Prior to the war, some <a href="https://www.washingtonpost.com/world/2022/03/16/china-ukraine-russia-war-diplomacy-strategy/">commentators </a> suggested that China would openly side with Russia or seek to act as a mediator – so far Beijing appears to have resisted doing either. </p>
<p>As Qin Gang, China’s ambassador to the US, wrote recently in the <a href="https://www.washingtonpost.com/opinions/2022/03/15/china-ambassador-us-where-we-stand-in-ukraine/">Washington Post</a>, Beijing has nothing to gain from this war, arguing “wielding the baton of sanctions at Chinese companies while seeking China’s support and cooperation simply won’t work”. Ambassador Qin also stressed that Beijing had no prior knowledge of the conflict, rejected any attempts to profit from the crisis and called on all sides to join peace negotiations.</p>
<p>Since Russia began the war in Ukraine, China has declared a de facto policy of neutrality. So far, Chinese foreign minister, Wang Yi, has been at pains to point out “China is not a party to the crisis, nor does it want sanctions <a href="https://www.ft.com/content/2b46df50-c6ab-4d58-9eef-5d3fb86905b1">to affect China</a>”. The decision to stay neutral reflects Beijing’s precarious position in the conflict. China had previously sought greater alignment with the Putin regime, based on shared antipathy to US and western power, including via a <a href="http://en.kremlin.ru/supplement/5770">joint statement</a> struck earlier this year, which confirmed a partnership with “no limits” and “no forbidden areas of cooperation”. </p>
<p>Since the Ukraine invasion, Beijing has not explicitly condoned nor condemned Russia’s actions in Ukraine and has hesitated to refer to the crisis as a war. Crucially, it also chose to abstain from both a United Nations Security Council <a href="https://www.reuters.com/world/russia-vetoes-un-security-action-ukraine-china-abstains-2022-02-25/">resolution vote </a> to end the Ukraine crisis and a <a href="https://www.bloomberg.com/news/articles/2022-03-03/overwhelming-un-vote-makes-china-s-ukraine-balancing-act-harder">UN General Assembly</a> vote condemning Moscow’s actions. It has, however, recently described its relationship with Russia as “<a href="https://www.thetimes.co.uk/article/china-hails-iron-clad-russia-friendship-and-condemns-double-standards-on-ukraine-j7fb8zhvq">iron-clad</a>”.</p>
<p>There have been fears that China could use the cover of this crisis to press its territorial claims on <a href="https://www.theguardian.com/world/2022/feb/25/of-course-i-worry-shockwaves-from-ukraine-reach-taiwan">Taiwan</a>. But the pervasive international condemnation of the Ukraine invasion, and the mounting list of tactical failures of the Russian military, makes the chances of action by Beijing against Taiwan less likely.</p>
<h2>Treading a careful line</h2>
<p>However, China has also been very careful not to make enemies in Europe. Ukraine and much of the former Soviet Union are key components in China’s ongoing <a href="https://theconversation.com/how-chinas-belt-and-road-initiative-is-changing-cities-and-threatening-communities-153515">Belt-and-Road</a> initiatives to build a massive international infrastructure of trade routes. In his Washington Post article, ambassador Qin explicitly talks about China’s history of trade with Ukraine, as well as with Russia. These moves all clearly signal that China is trying to steer a complex course between Russia and the west.</p>
<p>Beijing is, of course, also mindful of the reputational damage that siding with Moscow would have. While many of the Chinese brands have not pulled out of Russia, unlike their western counterparts, the withdrawal of Chinese-owned <a href="https://asia.nikkei.com/Politics/Ukraine-war/Chinese-companies-confronted-with-quandary-over-Russia-operations">TikTok</a> was a sign that Beijing was also keeping an eye on its international reputation. </p>
<p>Western sanctions and rouble volatility mean Chinese firms are not keen to jump into the Russian market to replace departing western companies. This is especially since any foreign assistance to Russia would be swiftly noticed by the international community. But the Chinese leadership has also <a href="https://www.ft.com/content/2b46df50-c6ab-4d58-9eef-5d3fb86905b1">been critical</a> of US threats to retaliate should Beijing be seen as assisting Russia in evading international sanctions.</p>
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Read more:
<a href="https://theconversation.com/ukraine-conflict-the-pros-and-cons-of-china-as-global-peace-mediator-178447">Ukraine conflict: the pros and cons of China as global peace mediator</a>
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<p>Rather than trying to get Beijing to act as a mediator in the conflict, western powers seem most concerned about China offering an economic or military lifeline to <a href="https://www.ft.com/content/52ea7aab-f8d1-46b6-9d66-18545c5ef9b9">Russia</a>. This would undermine the myriad sanctions and punitive measures that the west has put in place against <a href="https://www.itv.com/news/2022-03-02/ukraine-invasion-what-brands-are-pulling-out-of-russia-and-reducing-services">the Putin regime</a>, effectively unplugging Russia from the global economy.</p>
<figure class="align-center ">
<img alt="A map in yellow and pink of China's Belt and Road initiative." src="https://images.theconversation.com/files/452881/original/file-20220317-23-kdlrdw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452881/original/file-20220317-23-kdlrdw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=330&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452881/original/file-20220317-23-kdlrdw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=330&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452881/original/file-20220317-23-kdlrdw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=330&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452881/original/file-20220317-23-kdlrdw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=415&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452881/original/file-20220317-23-kdlrdw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=415&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452881/original/file-20220317-23-kdlrdw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=415&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">China’s Belt and Road inititative, above, is a plan to create international trade routes.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>There have been worrying reports, since denied by <a href="https://www.ft.com/content/52ea7aab-f8d1-46b6-9d66-18545c5ef9b9">both governments</a>, that Chinese-Russian logistical and military cooperation was <a href="https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/202203/t20220314_10651590.html">under discussion</a>. This concern was the subject of talks between US and Chinese officials in Rome on March 14. President Xi is not in the best position to face international ire over Russia given China’s slowing economy and ongoing internal battles over rising cases of <a href="https://www.reuters.com/world/china/chinas-covid-governance-under-pressure-omicron-spreads-2022-03-16/">COVID</a>. There’s also a Chinese Communist Party Congress later this year when Xi is expected to be granted a third term in office, but will face questions about the country’s economic reforms and post-pandemic recovery. </p>
<p>While China’s economy is <a href="https://www.scmp.com/economy/china-economy/article/3170010/china-gdp-2022-economic-growth-target-within-reach-it-will">far more robust</a> than Russia’s, the Xi government is still not able to risk the same global ostracism as Moscow. China’s ambitious economic expansion plans are based on a globalised economy. It is in Chinese interests now to protect that economy from a volatile period exacerbated by the pandemic, supply chain questions and a conflict which is already rattling numerous markets around the world.</p><img src="https://counter.theconversation.com/content/179403/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China has not pulled its brands out of Russia, but is not offering to fill the holes western sanctions are leaving.Aglaya Snetkov, Lecturer in International Politics, School of Slavonic and East European Studies (SSEES), UCLMarc Lanteigne, Associate Professor of Political Science, University of TromsøLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1763902022-02-04T14:07:01Z2022-02-04T14:07:01ZAs China welcomes the world to Winter Olympics, its economy is ever more isolated from the west<p>As the Beijing Winter Olympics get underway, all eyes are on China. There has been <a href="https://www.theguardian.com/world/2022/jan/30/sport-politics-and-covid-collide-at-the-beijing-winter-olympics">lots of coverage</a> about <a href="https://www.voanews.com/a/at-beijing-olympics-xi-and-putin-strive-for-unity-against-us/6426270.html">China’s chilly relationship</a> in the west and its persecution of <a href="https://www.aljazeera.com/news/2022/2/2/chinese-exiles-boycott-beijing-olympics-over-uyghur-genocide">the Uighur</a> and other minorities, but there is also much to be said about the Chinese economy. </p>
<p>China’s great rise over the past several decades has been the great economic success of our times, lifting hundreds of millions of people out of poverty and giving the global economy wheels in the years after the financial crisis of 2007-09. </p>
<p>Over the past decade, however, the <a href="https://www.boj.or.jp/en/research/wps_rev/wps_2021/data/wp21e07.pdf">miracle became</a> a bit more ordinary as growth gradually slowed. China found it difficult to keep increasing exports at the same pace year after year, particularly in the face of <a href="https://www.bbc.co.uk/news/business-47492397">weaker international demand</a> for its products – not least because of the trade war with the US. <a href="https://theconversation.com/chinas-long-term-problems-are-forcing-it-to-rethink-the-whole-economy-173443">Other issues</a> have included an ageing population and the fact that growth had become increasingly dependent on debt, which wasn’t sustainable. </p>
<p><strong>China’s economic growth 1997-2021</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=257&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=257&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=257&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=323&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=323&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444277/original/file-20220203-17-1gjb2zg.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=323&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/china/gdp-growth-annual">Trading Economics/National Bureau of Statistics of China</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p><a href="https://www.ft.com/content/e45496ec-82ff-4586-a062-20124739fcc1">China did</a> seem to have weathered the pandemic better than many major economies, having contained the virus so aggressively. Yet the picture has since deteriorated as renewed <a href="https://www.theguardian.com/world/2022/jan/11/millions-more-chinese-ordered-into-lockdown-to-fight-covid-outbreaks">domestic COVID outbreaks</a>, including the new omicron variant, have caused fresh economic disruption. </p>
<p>Omicron’s effect on other major economies is not good news for Chinese exports either. Neither is the resurgence of inflation in many countries, which has prompted the US Federal Reserve and other central banks to threaten higher interest rates and an end to creating money via <a href="https://www.bankofengland.co.uk/monetary-policy/quantitative-easing">quantitative easing</a>. This is likely to further dampen demand for Chinese goods. </p>
<p>China’s debt has also become an even bigger issue. Leading property developer Evergrande’s financial difficulties in 2021 made headlines, but excessive debt <a href="https://finance.yahoo.com/news/evergrande-just-tip-china-debt-001209129.html">is rife</a> throughout the property sector and beyond. If the bubble bursts, it could lead to a prolonged downturn that significantly damages the wider economy. </p>
<p>The government has been <a href="https://www.atlanticcouncil.org/blogs/new-atlanticist/chinas-debt-reduction-campaign-is-making-progress-but-at-a-cost/">pressuring major companies</a> to reduce their debts, while also restricting borrowing in the property sector and cracking down on informal lending across the country. It also sent a warning to excess borrowers through its willingness to <a href="https://www.nytimes.com/2021/12/09/business/china-evergrande-default.html">let Evergrande default</a>. </p>
<p>Weaker exports and reducing debt mean that China is heading for a slowdown: the World Bank <a href="https://www.worldbank.org/en/news/opinion/2022/01/12/rebalancing-act-china-s-2022-outlook#:%7E:text=Following%20a%20strong%208%20percent,of%20output%20at%20full%20capacity.&text=In%20the%20face%20of%20these,nonetheless%20keep%20a%20steady%20hand.">projects that</a> its economic growth will be just over 5% in 2022, compared to 8% in 2021. </p>
<h2>China’s challenges</h2>
<p>More broadly, China’s traditional growth model based on exports, infrastructure and real estate investment looks like it has run its course. The nation is facing a difficult rebalancing act as it aims to transition to relying much more on Chinese households consuming goods and services, while also <a href="https://theconversation.com/chinas-energy-crisis-shows-just-how-hard-it-will-be-to-reach-net-zero-169478">having to move</a> to a much less carbon-intensive economy.</p>
<p>Unfortunately for the ruling Communist Party, the best way to achieve this rebalancing is arguably to implement reforms that would limit the government’s influence in Chinese life. For example, the <a href="https://www.worldbank.org/en/country/china/publication/china-economic-update-december-2021">World Bank thinks</a> China needs to make it easier for companies to fail and to allow more private competition in sectors like education and healthcare as a way of driving up productivity. It also recommends enabling workers to move around the country by abolishing the <em>hukou</em> registration system in cities, since this system stipulates where someone is permanently resident. </p>
<p>Some World Bank recommendations do involve more government intervention, such as making the tax system more progressive to encourage consumers to spend more, and raising government spending on health and education so that people don’t need to save so much. Generally speaking, however, more liberalisation is the order of the day – and looks like the right way forward from my point of view. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/pDj8UL9kjnQ?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>Yet China has become more interventionist in the Xi era, cracking down on everything from <a href="https://www.prospectmagazine.co.uk/world/chinas-crackdown-on-its-tech-billionaires-marks-a-strategic-watershed-for-xi-jinping">tech billionaires</a> to the number of hours that <a href="https://qz.com/2056875/chinas-crackdown-on-video-games-is-getting-more-serious/">children can play</a> video games each day. Meanwhile, China’s <a href="https://www.nature.com/articles/d41586-022-00191-7">zero-COVID strategy</a> has involved tightly sealed borders, swift citywide lockdowns and mass testing. </p>
<p>China adopted this strategy partly out of fear that its poor healthcare system could be completely overwhelmed by COVID, and more recently as a way of ensuring that the Winter Olympics proceed smoothly. Yet such is the climate in China that <a href="https://www.ft.com/content/0e6914ed-3ce5-4f7f-ab91-ce7b0ad68f2c">some commentators fear</a> that it will not open up again, that the health crisis is turning into a political crisis of more committed isolation. </p>
<p>China therefore finds itself at a crossroads. On the one hand, it wants a greater role in the global economy, as can be seen through its <a href="https://greenfdc.org/brief-china-belt-and-road-initiative-bri-investment-report-2021/">Belt and Road Initiative</a> to drive infrastructure development around the world in exchange for closer ties with Beijing. </p>
<p>But there is a contradiction between continuing to engage with global trade and the Chinese government’s instinct towards technological self-sufficiency and homegrown innovation. Trade liberalisation also requires, for example, opening up the banking sector to foreign lenders to make it more efficient. Yet that is a long way from Beijing’s interventionist approach. Indeed, the fact that the banks, which are partly owned by the state, were given mandates to lend to state-owned companies with poor financial status was the cause of many the debt problems in the first place. </p>
<p>Unfortunately, the indications are that China is more likely to move towards greater isolationism from the west. This might mean restricting people visiting the country and concentrating more on domestic consumption than global trade. We might see it further tacking away from globalisation via trade wars, as well as imposing greater <a href="https://www.centralbanking.com/central-banks/currency/7860946/chinas-capital-controls-here-to-stay">capital controls</a> to make it harder for money to get in and out of the country. Obviously, China is partly acting out of provocation from the west, but its overall policy shift has been to a large extent homegrown. </p>
<p>As with the winter Olympics, where China is trying to keep the athletes separate from its people, the nation is also behaving in a similar way with regard to the rest of the world. What should be a celebration of international cooperation is happening at a time when the exact opposite is taking place.</p><img src="https://counter.theconversation.com/content/176390/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kate Phylaktis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China is at a crossroads: it is retreating from the world’s major economies at the very moment it arguably needs to open up.Kate Phylaktis, Professor of International Finance and Director, Emerging Markets Group, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1734432021-12-08T16:44:31Z2021-12-08T16:44:31ZChina’s long-term problems are forcing it to rethink the whole economy<figure><img src="https://images.theconversation.com/files/436397/original/file-20211208-25-8kjve4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stuck in first gear. </span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/ctsCQaJMTic">Yannes Kiefer/Unsplash</a></span></figcaption></figure><p>The People’s Bank of China <a href="https://www.cityam.com/china-central-bank-slashes-reserve-requirement-to-boost-struggling-businesses/#:%7E:text=Omicron%20jitters%20recede-,The%20required%20reserve%20ratio%20(RRR)%20has%20been%20cut%20by%200.5,credit%20flowing%20around%20an%20economy.">is encouraging</a> Chinese banks to lend more to businesses and consumers by cutting the proportion of deposits that they have to hold as reserves by 0.5 percentage points to an average of 8.4% from December 15. </p>
<p>It follows a <a href="http://english.www.gov.cn/statecouncil/ministries/202107/09/content_WS60e82fadc6d0df57f98dca96.html">similar cut</a> in July, and is an interesting counterpoint to western central banks such as the Bank of England and Federal Reserve. They are <a href="https://www.bloomberg.com/news/articles/2021-11-30/powell-ditches-transitory-inflation-tag-paves-way-for-rate-hike">talking about</a> tightening <a href="https://www.bbc.co.uk/news/business-59160991">monetary conditions</a> to dampen inflation by raising interest rates and reducing quantitative easing, which effectively creates more money to stimulate lending. </p>
<p>So why are the Chinese loosening and what effect will it have?</p>
<h2>China’s growth headache</h2>
<p>The official reasoning is to ease credit conditions in the face of a slowing property sector and a disappointing annual GDP growth rate of 4.9% in the third quarter, down from 7.9% in the second quarter. The cut in the bank reserves minimum, which is known as the required reserve ratio or RRR, is expected to release ¥1.2 trillion (£143 billion) of extra money into the economy. </p>
<p>This aims to bolster demand within China so that the modest government growth target of 6% in 2021 will be met. It could achieve that short-term goal by stimulating demand if credit expands and gets to the right places. And, unlike the west, inflation is less of a problem in China because the money supply has been growing slowly. </p>
<p>Despite the hype about China bouncing back from its lockdown experience, the pandemic has not helped its economic situation. Like the rest of the world, it has encountered <a href="https://thediplomat.com/2021/11/chinas-supply-chain-bottlenecks-winners-and-losers/#:%7E:text=China's%20supply%20chains%20have%20taken,sudden%20surge%20in%20consumer%20demand.&text=China's%20factories%20made%20a%20comeback,has%20since%20declined%20throughout%202021.">major supply disruptions</a>. Some has been domestically driven but most is global, with shortages of electronic chips, coal, steel and shipping capacity causing power shortages and shutdowns. </p>
<p>But these are short-term problems that may dissipate as the pandemic eases. Unfortunately, there are also long-term issues that tinkering with the RRR will not solve.</p>
<h2>Pillars wobbling</h2>
<p>Growth in China was in fact declining well before the pandemic struck: from a peak of 15% in the second quarter of 2007 to 6% in the first three months of 2019. The nation’s growth strategy rests on four pillars. Three are frequently talked about – infrastructure, exports and consumers – while the fourth is only whispered in official circles – and that is the property sector. </p>
<p>The property sector <a href="http://www.nber.org/papers/w27697">supports 25%-29%</a> of China’s GDP and it is struggling. With major players such as Evergrande <a href="https://www.bbc.com/news/business-59286413">overloaded with debts</a> and struggling to stay viable, prices for new homes are falling and construction has greatly slowed. </p>
<p><strong>China’s GDP growth 2000-21</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="China's GDP growth rate since 2000" src="https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=291&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=291&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=291&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=366&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=366&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436359/original/file-20211208-13-g9yc4i.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=366&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/china/gdp-growth-annual">Trading Economics/National Bureau of Statistics of China</a></span>
</figcaption>
</figure>
<p>Nor is property the only economic pillar on shaky ground. Infrastructure spending led by local government and large-scale projects headed by state-owned companies served the Chinese economy well in decades gone by. But then came the global financial crisis of 2007-09, which prompted a ¥4 trillion <a href="https://www.forbes.com/consent/?toURL=https://www.forbes.com/2008/11/09/china-stimulus-economy-biz-cx_pm_1109notes.html">fiscal stimulus package</a> in 2008. China’s money supply increased by nearly 30%, leading to a doubling of stock prices and a property boom. </p>
<p>Beijing started restricting credit in 2009 in ant attempt to curb this overheating. One consequence was that <a href="https://www.theatlantic.com/china/archive/2013/06/shadow-banking-threatens-chinas-economy-but-what-is-it-exactly/277333/">banks started</a> devising alternative financing vehicles – the Chinese variety of what is known as <a href="https://www.investopedia.com/terms/s/shadow-banking-system.asp">shadow banking</a> – that diverted money into local government spending on infrastructure and property. </p>
<p>This meant infrastructure spending continued, but it produced <a href="https://www.morningstar.co.uk/uk/news/161644/chinas-infrastructure-projects-suffer-diminishing-returns.aspx">rapidly declining returns</a> for the economy, because much of it was unnecessary. Tens of millions of apartments were built, even entire ghost cities, for workers that never arrived. Where previously migration flowed from rural areas to towns, this has dried up. Real estate <a href="https://foreignpolicy.com/2021/09/29/chinas-property-sector-evergrande/">investment growth</a> reached a peak in 2013 and continues to grow – but at a lower pace.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Fancy tower blocks in Beijing" src="https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=750&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=750&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=750&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=942&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=942&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436400/original/file-20211208-68670-pb3kfr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=942&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The binge that built Beijing.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/xrCNPGLk1wk">Road Trip with Raj</a></span>
</figcaption>
</figure>
<p>Exports, on the other hand, still do drive growth, since global supply chains remain dependent on Chinese manufacturing. But China’s rising <a href="https://tradingeconomics.com/china/labour-costs">cost of labour</a> has meant that profit margins are often very thin, adding little value to the economy, and manufacturers <a href="https://www.examinechina.com/blog/bankruptcies-of-chinese-factories/">are susceptible</a> to being wiped out by movements in the yuan and volatility in global demand. </p>
<p>The trade war kicked off by the Trump administration, which has <a href="https://www.aljazeera.com/economy/2021/11/18/after-biden-xi-summit-what-next-for-us-china-trade-war">broadly continued</a> under Joe Biden, has shown China that the old export-led growth model is unreliable and it needs to move up the value chain by focusing more on exports with higher <a href="https://www.investopedia.com/terms/v/valueadded.asp">value-added</a> (meaning products where there’s a bigger difference between the cost of production and the sale price). Many low value-added operations have already relocated to Bangladesh, Vietnam and Indonesia.</p>
<p>At the same time, China’s “one-child” policy and the preference for male babies has led to a decline in fertility and population growth. China’s population is expected to peak between <a href="https://www.reuters.com/world/china/chinas-population-hit-turning-point-2026-2030-think-tank-2021-05-12/">2025 and 2030</a>, or <a href="https://www.scmp.com/tech/policy/article/3158373/chinas-population-peak-2021-demographic-turning-point-has-already">perhaps sooner</a>. </p>
<p>The dependency ratio – the ratio of non-workers to the working population – has <a href="https://www.statista.com/statistics/224941/dependency-ratio-in-china/">already been rising</a> for at least a decade and is expected to continue doing so. As the working population declines and the consumer demand of young and retired dependents keeps increasing, China’s consumption will outstrip economic output. </p>
<h2>The turn inwards</h2>
<p>Under the guise of “common prosperity”, the government is signalling that the private sector is to be brought into the orbit of state control. It has clamped down on <a href="https://asiatimes.com/2021/06/chinas-shadow-bank-crackdown-is-finally-working/">shadow banking</a> and the peer-to-peer <a href="https://www.finews.asia/finance/32511-less-than-1-percent-of-p2p-lenders-left-in-china">lending platforms</a> that have been the lifeline for many small businesses, since most bank lending is restricted to state-owned enterprises. </p>
<p>The government has also introduced restrictions in areas such as the <a href="https://theconversation.com/chinas-tech-and-finance-crackdown-is-a-challenge-to-western-ideas-that-cuts-across-developing-world-171059">tech sector</a>, <a href="https://techcrunch.com/2021/09/22/the-casualties-of-chinas-education-crackdown/">out-of-school education</a> and overseas <a href="https://www.aljazeera.com/economy/2021/7/12/chinas-crackdown-puts-at-least-70-ipos-billions-in-fees-on-ice">stock market listings</a>. And the message to the global capital markets is that China does not need foreign finance unless it is investment with expertise and know-how. </p>
<p>Foreign investors have <a href="https://fortune.com/2021/10/20/investors-chinese-equities-1-trillion-dollars-big-tech-china-crackdown/">naturally reacted</a> with alarm to all this intervention, dumping Chinese stocks and withdrawing exposure to China. There are several possible interpretations of this chain of events: China may have genuinely underestimated the reaction of global investors, or it might all be a carefully thought-out strategy brought forward by the pandemic. </p>
<p>For some time, China has <a href="https://www.omfif.org/2020/09/china-on-the-way-back-to-rebalancing/">been talking about</a> re-balancing away from exports towards domestic growth. While infrastructure spending has clearly produced mixed results, domestic consumption can be stimulated if Chinese manufacturers reduce their dependence on overseas customers and focus closer to home. </p>
<p>The pandemic and the government’s <a href="https://www.bbc.co.uk/news/world-asia-china-59257496">zero-COVID policy</a> have given it the opportunity to steer the economy away from the outward-looking opening-up strategy pioneered by Deng Xiaoping in the 1980s to a more inward-looking strategy under Xi Jinping today. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Picture of Xi Jinping waving" src="https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436399/original/file-20211208-19-1d9nfjk.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Xi Jinping’s approach to the state is increasingly different to his predecessors.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-march-25-2018-chinese-1353005396">Frederic Legrand - COMEO</a></span>
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<p>The term “<a href="https://www.bruegel.org/2021/09/what-is-behind-chinas-dual-circulation-strategy/">dual circulation</a>”, in the sense of unlocking China’s economic potential at home and abroad, has been used by the administration to hide a desire for greater self-reliance in technology, energy, finance and education. This will have far-reaching consequences for the world economy, not least for UK universities dependent on future Chinese students.</p>
<p>In <a href="https://www.goodreads.com/book/show/2497274.Chinese_Looking_Glass">Chinese Looking Glass</a>, the 1969 book by British journalist Dennis Bloodworth, he explains Chinese policy deriving straight out of its ancient Taoist philosophy of yin and yang. In foreign policy China first “awes” (yang), then “soothes” (yin). </p>
<p>Threatening the private sector in China and scaring foreign investors may be part of the yang strategy. Once the economy shows signs of rebalancing towards domestic expenditure, we may see the yin strategy.</p><img src="https://counter.theconversation.com/content/173443/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kent Matthews does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China is trying to stimulate bank lending – but it also has longer term problems.Kent Matthews, Professor of Banking and Finance, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1689302021-09-30T20:06:33Z2021-09-30T20:06:33ZVital Signs: Evergrande may survive, but for its executives expect a fate worse than debt<figure><img src="https://images.theconversation.com/files/423971/original/file-20210930-16-wo1q4.jpg?ixlib=rb-1.1.0&rect=0%2C1008%2C7091%2C3556&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Alex Plaveski/AP</span></span></figcaption></figure><p>A large, financially interconnected company is on the verge of collapse, weighed down by massive debt. The government ponders a bailout. There’s no easy answer. Doing nothing risks serious financial upheaval. But bailing it out will signal that greed, irresponsibility and moral hazard have no consequences.</p>
<p>It’s a tough call. And if this all sounds eerily familiar, then you’re right. In 2008 the US government faced the dilemma with what to do about Lehman Brothers, the nation’s fourth-biggest investment bank which found itself unable to pay debts totalling more than US$600 billion.</p>
<p>Now the Chinese government is facing a comparable situation with Chinese property and financial behemoth Evergrande.</p>
<p>Lehman Brothers, established in 1847, survived the US Civil War, the Great Depression and two world Wars. Then in the feverish bubble of risky bets on the US mortgage market in the 1980s, it got into deep trouble. </p>
<p>US Treasury Secretary Hank Paulson — a former senior Wall Street executive — was, by all accounts, offended that Lehman had so recklessly gotten into this position. Why not send a message that the US government wasn’t going to bail out big banks who behaved badly?</p>
<p>The answer, it turned out, is that letting Lehman fail ricocheted through the US and global economy. </p>
<p>When Lehman filed for Chapter 11 bankruptcy protection, it was facing the largest bankruptcy in history. Those to whom it owed money were immediately put under pressure. That put those to whom they owed money under pressure. Money markets almost completely froze up. </p>
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Read more:
<a href="https://theconversation.com/vital-signs-the-gfc-and-me-ten-years-on-what-have-we-learned-103514">Vital Signs: the GFC and me. Ten years on, what have we learned?</a>
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<p>Even Goldman Sachs – Wall Street’s most venerable firm and basically on the good side of mortgage-market trades — was hammered. It took legendary investor Warren Buffett plowing US$5 billion into the company to avoid a modern-day bank run.</p>
<h2>China’s Lehman moment?</h2>
<p>Unlike Lehman Brothers, Evergrande isn’t an investment bank. Ostensibly it is a real estate developer, responsible for building apartments across China. But it has morphed into more than that — a highly leveraged and integrated company that does everything from banking to property development to selling electric cars.</p>
<p>Like many things in China, the true state of affairs is all a little unclear, but one reading is that Evergrande is basically a hedge fund with a property and vehicle business attached.</p>
<p>The proximate cause of concern is Evergrande missing an US$83 million interest payment on September 23. The clock is running, in that is has 30 days to “cure the breach” and figure out a way to pay. Otherwise things, as the cool kids say, will “start getting real”.</p>
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Read more:
<a href="https://theconversation.com/chinas-problem-with-property-the-domino-effect-of-evergrandes-huge-debts-168601">China's problem with property: the domino effect of Evergrande's huge debts</a>
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<p>For now disaster has been averted by Evergrande agreeing to sell off its stake in a local bank (Shengjing Bank) <a href="https://www.reuters.com/world/china/china-evergrande-transfer-15-bln-stake-shengjing-bank-state-firm-2021-09-29/">for nearly 10 billion yuan</a> (about US$1.5 billion) to the state-owned Shenyang Shengjing Finance Investment Group. </p>
<p>But Evergrande has US$300 billion in debt, so there’s really no running away from the issue for the Chinese authorities. If there are more dodgy dealings on Evergrande’s books then that US$1.5 billion will simply be buying time.</p>
<p>If things are as rotten in the state of Evergrande as many observers seem to think, then the Chinese government is going to have to bail it out, or let it fail. </p>
<p>In a sense, the CCP may be feeling “we’re all Hank Paulsons now”.</p>
<h2>China’s extra tools</h2>
<p>That said, there is an intriguing — if somewhat troubling — option available to Chinese authorities. </p>
<p>They could bail out the company but punish its top brass with serious personal sanctions. To put it bluntly, they don’t have to be concerned with the niceties of due process in the same way the US government does.</p>
<p>The Chinese government can, if it wishes, prevent the reverberations throughout the economy that would flow from an Evergrande collapse, but deter moral hazard in the future. It can send a very clear message of consequence for executives who engage in reckless and potentially corrupt behaviour. Maybe incarceration for life. Maybe worse.</p>
<p>It’s an interesting, if rather grim, example of the Tinbergen Rule — named after Jan Tinbergen, the winner of the <a href="https://www.nobelprize.org/prizes/economic-sciences/1969/tinbergen/facts/">first Nobel prize for economics</a>. This rule says for each policy challenge one requires an independent policy instrument. The US government had one. The Chinese regime has two.</p>
<h2>This all raises bigger issues</h2>
<p>Beyond this lie much bigger issues. How well have Chinese enterprises actually been performing? Up until now it looked like the answer was remarkably well. But is this all a mirage, sustained by the lack of transparency that shrouds all Chinese institutions?</p>
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Read more:
<a href="https://theconversation.com/china-is-financing-infrastructure-projects-around-the-world-many-could-harm-nature-and-indigenous-communities-168060">China is financing infrastructure projects around the world – many could harm nature and Indigenous communities</a>
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<p>It looks as if there may be two types of Chinese corporation: the ones that “make” things, which have been successful and still are, and the ones that “bank” things, which look disturbingly similar to their capitalist counterparts in the Western world when moral hazard and corruption are allowed to run rampant.</p>
<p>The shakeout of the coming years will reveal a lot about the economic bedrock of Chinese global power.</p><img src="https://counter.theconversation.com/content/168930/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President-elect of the Academy of the Social Sciences in Australia.</span></em></p>Chinese authorities have an intriguing, if troubling, option in handling the Evergrande crisis.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1675972021-09-29T18:19:46Z2021-09-29T18:19:46ZHow the pandemic has changed China’s economy – perhaps for good<p>China was the first country to be affected by Covid-19 and took unprecedented lockdown measures that led to a <a href="https://www.lepoint.fr/economie/la-croissance-chinoise-reste-positive-en-2020-malgre-le-covid-18-01-2021-2410000_28.php">historic decline in growth of at least 6%</a> in 2020. But in 2021, the country has mounted a recovery and economic growth is <a href="https://openknowledge.worldbank.org/handle/10986/35897">projected</a> to reach 8.5 percent by the end of the year, according to the Organisation for Economic Co-operation and Development.</p>
<p>Yet the pandemic has still led to lasting changes the labour market in China, following which the country may need to pursue new avenues for growth.</p>
<p>In the hospitality and export industries, companies were forced to <a href="http://www.chinanews.com/gn/2020/05-20/9190092.shtml">lay off staff or delay their return to work</a> in 2020. The delivery sector, on the other hand, has been growing continuously for a number of years now and has recruited en masse during the pandemic, with many workers who lost their jobs in other sectors turning instead to more flexible roles as <a href="http://www.199it.com/archives/1086268.html">couriers and drivers</a>.</p>
<h2>Migrant workers</h2>
<p>Rural migrants have been the main architects of China’s remarkable growth over the past three decades, accounting for a third of the country’s more than 800 million workers. For the first time since 2008, they have decreased: <a href="http://www.stats.gov.cn/tjsj/zxfb/202104/t20210430_1816933.html">from 290.8 million in 2019 to 285.6 million in 2020</a>.</p>
<p>According to some surveys, some rural migrants are thought to have <a href="https://mri.meituan.com/research/home">returned to their original roles</a> when businesses began to recover. But others, many of who returned to their hometowns to mark the Lunar New Year <a href="https://www.yicai.com/news/100726880.html">never returned to the city</a>, owing to administrative constraints and later a lack of opportunities.</p>
<p>By the end of July 2020 there were <a href="https://www.yicai.com/news/100726880.html">over 13 million migrant workers employed locally</a>. Alongside those who became farmers or were taken on by companies, <a href="https://www.yicai.com/news/100726880.html">5% started making local products</a> and selling them directly via live-streaming, thus undermining the Chinese model of modernisation which had previously been based on the mobilisation of cheap and easily exploitable rural labour in towns and cities for the past three decades.</p>
<h2>Women lose out</h2>
<p>In China, as elsewhere, the position of women in the job market in particular has deteriorated, with the pandemic only serving to accentuate the <a href="https://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS">steady decline in their rate of employment</a>, which had already dropped from 80% in the 1980s to 60% in 2019. In cities, <a href="https://www.sohu.com/a/394181402_260616.">family members</a> have once again been called upon to care for children and the elderly – a task normally entrusted to migrant women.</p>
<p>While some mothers <a href="https://zhuanlan.zhihu.com/p/111899231">praise the strengthening of family ties resulting from the lockdown</a>, others have reported heightened levels of anxiety and an <a href="https://zhuanlan.zhihu.com/p/107320328">excessive physical and mental burden</a>.</p>
<p>For upper-class women, leaving the job market leads to financial dependence on their husbands, who usually earn a salary that is sufficient to maintain the household’s standard of living. For working-class women, however, the pandemic has only reinforced the <a href="https://www.sohu.com/a/394181402_260616">precariousness</a> of the situations in which they already found themselves.</p>
<h2>A tough market for graduates</h2>
<p>Young graduates in the job market, the number of which is expected to reach an unprecedented peak of 9.09 million in 2021 – representing an <a href="http://www.gov.cn/zhengce/zhengceku/2021-03/19/content_5593988.htm">increase of 350,000 on 2020</a> – are particularly vulnerable.</p>
<p>The pandemic has made it all the more difficult for young graduates to find work in 2021 since large numbers of the previous cohort are still yet to find employment. Many of them are consequently preparing <a href="https://www.xianjichina.com/news/details_252113.html">to continue their studies</a> or to take the entrance exams for the civil service in an attempt to delay their entry into such a hostile market. A <a href="https://www.xianjichina.com/news/details_252113.html">survey</a> conducted in Hunan province estimated that 37.5% of young graduates intended to set up their own businesses, a move encouraged by the authorities, 20.8% to continue their studies and 10.5% to take civil service exams.</p>
<p>The competition for first jobs is all the more fierce given that students who had left to study and work abroad have been returning in droves since mid-2020 when Covid-19, which had been effectively contained in China, intensified in North America and Europe.</p>
<h2>The end of a cycle</h2>
<p>The pandemic has confirmed what a general slowdown had already been indicating for several years: China is at the end of a cycle and must find new drivers for its growth.</p>
<p>We can also assume that the health and geopolitical context will stem the flow of Chinese students travelling abroad in the future, and that the difficulties that potential host countries experience in dealing with Covid-19 and <a href="https://theconversation.com/with-vision-of-a-free-and-open-indo-pacific-quad-leaders-send-a-clear-signal-to-china-167896">international</a> <a href="https://theconversation.com/aukus-is-an-arms-race-with-china-the-price-of-global-britain-168107">tensions</a> might result in well-off families deciding not to send their children to Australia, the United States or Europe.</p>
<p>As China becomes more powerful on the international stage, this process is likely to lead, in the long run, to the return of its economy and its society back to its own territory.</p><img src="https://counter.theconversation.com/content/167597/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renyou Hou has received funding from ANR, IRSC, AFD. </span></em></p><p class="fine-print"><em><span>Gilles Guiheux, Guo Ye, Ke Huang, Li Jun et Manon Laurent ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur poste universitaire.</span></em></p>In China, as elsewhere, the pandemic has turned the world of work upside down.Gilles Guiheux, Professeur, socio-histoire de la Chine, CESSMA (UMR 245), Université Paris CitéGuo Ye, Doctorante au Centre d’études en sciences sociales sur les mondes africains, américains et asiatiques (CESSMA), Université Paris CitéKe Huang, Doctorant en sociologie au Laboratoire de Changement Social et Politique (LCSP), Université Paris CitéLi Jun, Doctorante au Centre d’études en sciences sociales sur les mondes africains, américains et asiatiques (CESSMA), Université Paris CitéManon Laurent, Doctorante au Centre d’études en sciences sociales sur les mondes africains, américains et asiatiques (CESSMA), Université Paris CitéRenyou Hou, Anthropologue, postdoctorant de la Fondation Chiang Ching-kuo, au LESC (Laboratoire d'ethnologie et de sociologie comparative), Université Paris Nanterre – Université Paris LumièresLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1686012021-09-29T12:37:32Z2021-09-29T12:37:32ZChina’s problem with property: the domino effect of Evergrande’s huge debts<figure><img src="https://images.theconversation.com/files/422956/original/file-20210923-15-ra3yyc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> </figcaption></figure><p>The Chinese property giant Evergrande is suffering under an enormous pile of debt, <a href="https://www.bbc.co.uk/news/business-58540939">reportedly worth US$305 billion</a> (£220 billion). There have been angry <a href="https://www.reuters.com/business/protesters-taken-away-outside-china-evergrande-headquarters-2021-09-16/">protests</a> at its headquarters, shares have tumbled, and the eyes of the financial world remain anxiously focused on its future. </p>
<p>Put simply, the situation at Evergrande is dire. And the potential impact of its troubles reaches far beyond the company itself, with devastating consequences for individual home owners in China, businesses and the global economy. </p>
<p>The big question is whether Evergrande will go bankrupt. The company has fiercely denied the prospect and <a href="https://www.evergrande.com/News/Details/248975">insists</a> it will find a way out of trouble. But some <a href="https://www.theguardian.com/world/2021/sep/21/evergrande-will-it-collapse-and-what-would-happen-if-it-did">industry experts predict</a> the most likely scenario is that the company will eventually seek bankruptcy. <a href="https://new.qq.com/omn/20210917/20210917A0C8FK00.html">Reports suggest</a> that a state-owned investment company has been lined up to manage Evergrande’s assets. </p>
<p>From the Chinese government’s perspective, the aim will be for Evergrande to come to an arrangement to repay its debts, hopefully minimising the impact of its collapse on the financial sector. Those most at risk include the companies it owes, who could go bankrupt, or banks it is in debt to who could lose so much money that they can’t lend to other businesses, which could then go bankrupt. </p>
<p>And since Evergrande borrowed <a href="https://new.qq.com/omn/20210920/20210920A02B5O00.html">heavily from state-owned banks</a>, this outcome puts significant pressure – and a potential hefty loss – on the shoulders of the Chinese government. </p>
<p>In an attempt to calm nerves, on September 21 the chairman of Evergrande, Xu Jiayin, <a href="https://sg.weibo.com/1988800805/Kzjgs4Tiw%5D">said the company</a> will pay the annual interest on a debt worth US$600 million. It is hoped this will reassure the company’s employees and send a positive signal to the company’s stakeholders. </p>
<p>So far, such measures seem to have had at least a temporary effect on the stock market, which has seen dramatic falls over the <a href="https://finance.yahoo.com/quote/3333.HK/">past six months</a>. On September 23, the share price of <a href="https://www.independent.co.uk/asia/china/china-evergrande-share-price-jumps-b1925490.html">Evergrande went up</a>, but the next day concerns grew once again after an <a href="https://www.theguardian.com/world/2021/sep/24/eerie-silence-as-evergrande-misses-payment-deadline">interest payment was missed</a>.</p>
<h2>Knock-on effect</h2>
<p>The immediate impact of Evergrande’s troubles will be on China’s once booming property market. The sector represents <a href="https://www.sohu.com/a/452442723_825950">7.3% of the country’s GDP</a> compared to <a href="https://www.sohu.com/a/446587699_100081248">4.1% in 2000</a>. It is a market which been <a href="https://www.abc.net.au/news/2021-09-06/china-property-bubble-may-be-about-to-burst-hurting-australia/100435868">over-expanding for many years</a>, with the debt level of other big development firms already <a href="https://www.bjnews.com.cn/house/2020/04/30/723203.html">very high</a>. If Evergrande were to collapse, it would cause a domino effect across the sector, potentially leading to the demise of more businesses. </p>
<p>Indeed, the China Chenxin Credit Rating Group (CCXIS) <a href="https://www.nasdaq.com/articles/evergrandes-unit-says-ccxis-outlook-downgrade-will-not-have-major-impact-2021-07-28">has already downgraded</a> the outlook of China’s property sector to negative. This change makes it even more difficult for those companies to raise funds, exacerbating the debt situation and making borrowing more expensive.</p>
<p>Beyond the world of property, the collapse of Evergrande would have major ramifications in other sectors it is involved with, including consumer electronics, building materials, furniture and electric cars.</p>
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<img alt="" src="https://images.theconversation.com/files/422980/original/file-20210923-25-7ule6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/422980/original/file-20210923-25-7ule6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/422980/original/file-20210923-25-7ule6q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/422980/original/file-20210923-25-7ule6q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/422980/original/file-20210923-25-7ule6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/422980/original/file-20210923-25-7ule6q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/422980/original/file-20210923-25-7ule6q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chinese property has been booming.</span>
</figcaption>
</figure>
<p>The situation remains fluid, and it is difficult to predict what will happen next. But in the longer term, Evergrande’s future, if it has one, may be more in line with China’s longer-term strategy on making accommodation more accessible to more people.</p>
<p>The Chinese government has said it wants to provide ordinary people with affordable housing, <a href="https://www.msn.com/en-xl/news/other/beijing-s-common-prosperity-push-shows-how-its-china-model-is-taking-shape/ar-AAO2eLY">recently reemphasising</a> the philosophy of “common prosperity” and the idea that a house is for living in, not investing in. For this reason, Beijing is keen to dampen the overheated property market and steer overall investment to strategically important sectors including semi-conductors, new energy and pharmaceuticals. </p>
<p>But private companies of any description are likely to be hit by the fall out from Evergrande – a private enterprise which has grown into an economic giant. State-owned enterprises in these strategically important sectors meanwhile are likely to gain greater advantage in terms of trust and resources. </p>
<p>In the immediate future, the Chinese government may have other pressing concerns. If Evergrande goes bankrupt, it will need to engage in the expensive task of protecting tens of millions of home owners and avoiding social unrest.</p><img src="https://counter.theconversation.com/content/168601/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Qing Wang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The fall-out from Evergrande’s problems will be widely felt.Qing Wang, Professor of Marketing and Innovation, Director, Marketing Innovation and The Chinese and Emerging Economies (MICEE) Network, Warwick Business School, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1568362021-07-09T22:47:35Z2021-07-09T22:47:35Z‘To get rich is glorious’: how Deng Xiaoping set China on a path to rule the world<figure><img src="https://images.theconversation.com/files/390053/original/file-20210317-19-fjo2ai.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wikimedia Commons</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p><em>This piece is part of a new series in collaboration with the ABC’s Saturday Extra program. Each week, the show will have a “who am I” quiz for listeners about influential figures who helped shape the 20th century, and we will publish profiles for each one. You can read the other pieces in the series <a href="https://theconversation.com/au/topics/guess-the-game-changer-106624">here</a>.</em></p>
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<p>Deng Xiaoping could lay claim to being the most significant political leader of the latter part of the 20th century, and one whose legacy continues to expand.</p>
<p>His record is remarkable.</p>
<p>It is at least arguable, if not certain, that had it not been for Deng’s force of personality and his willingness to take political risks, China would not have embarked in 1978 on an accelerated process of economic development.</p>
<p>If the Chinese economy had not achieved <a href="https://www.worldbank.org/en/country/china/overview">staggering rates of economic growth</a> of 10% annually on average in the decades following Deng’s political re-emergence in 1977, the world would be a very different place.</p>
<p>In other words, one man of diminutive size — he was barely <a href="https://www.nytimes.com/2004/05/21/world/chinese-people-s-republic-is-unfair-to-its-short-people.html">1.5 metres tall</a> — has had an outsize impact on world economic history. </p>
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<p><em>You can listen to more articles from The Conversation, narrated by Noa, <a href="https://theconversation.com/uk/topics/audio-narrated-99682">here</a>.</em></p>
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<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/404740/original/file-20210607-8878-iyhex5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/404740/original/file-20210607-8878-iyhex5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404740/original/file-20210607-8878-iyhex5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404740/original/file-20210607-8878-iyhex5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404740/original/file-20210607-8878-iyhex5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404740/original/file-20210607-8878-iyhex5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404740/original/file-20210607-8878-iyhex5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Soviet leader Mikhail Gorbachev meeting with Deng Xiaoping in Beijing on the eve of the Tiananmen Square crackdown in 1989.</span>
<span class="attribution"><span class="source">Boris Yurchenko/AP</span></span>
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</figure>
<h2>Deng’s rise, fall and rise again</h2>
<p><a href="https://www.nytimes.com/1997/02/20/world/deng-xiaoping-a-political-wizard-who-put-china-on-the-capitalist-road.html">Born to a landowning family</a> in Sichuan province in 1904, Deng gradually progressed through the Chinese Communist hierarchy as a committed Marxist-Leninist and a tough field commander and political commissar.</p>
<p>Mao Zedong may have prevailed in a <a href="https://www.britannica.com/place/China/War-between-Nationalists-and-communists">bloody revolutionary war against the Nationalists</a>, but it was his one-time protégé who propelled a country containing one-quarter of the world’s population into a new era.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/404742/original/file-20210607-13-1a7pi9p.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/404742/original/file-20210607-13-1a7pi9p.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=668&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404742/original/file-20210607-13-1a7pi9p.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=668&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404742/original/file-20210607-13-1a7pi9p.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=668&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404742/original/file-20210607-13-1a7pi9p.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=840&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404742/original/file-20210607-13-1a7pi9p.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=840&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404742/original/file-20210607-13-1a7pi9p.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=840&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Deng Xiaoping visiting a factory in the city of Wuhan in 1958.</span>
<span class="attribution"><span class="source">Wikimedia Commons</span></span>
</figcaption>
</figure>
<p>History will be a lot kinder to Deng than it will be to Mao, who brought enormous grief to his country in highly destructive political campaigns, culminating in the <a href="https://www.theguardian.com/world/2016/may/11/the-cultural-revolution-50-years-on-all-you-need-to-know-about-chinas-political-convulsion">Cultural Revolution</a> of 1966–76.</p>
<p>Deng himself was a victim of these campaigns. He was banished from the Chinese leadership early in the Cultural Revolution until he was rehabilitated in 1973 by his patron, then-Premier Zhou Enlai. He was purged a second time after Zhou died in 1976.</p>
<p>Mao’s death not long after Zhou’s and the <a href="http://news.bbc.co.uk/onthisday/hi/dates/stories/october/11/newsid_4712000/4712306.stm">arrest of the Maoist acolytes known as the “Gang of Four”</a> enabled Deng to assert himself in a series of stunning political manoeuvres that ruled a line under years of revolutionary upheaval.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/culture-free-speech-and-celebrating-mao-downunder-64360">Culture, free speech and celebrating Mao downunder</a>
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</em>
</p>
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<h2>To get rich is glorious</h2>
<p>Deng was, without question, an authoritarian figure who believed in the absolute power of the Chinese Communist Party. His legacy will be forever stained by his authorisation of force against the <a href="https://www.nytimes.com/2010/06/05/world/asia/05china.html">pro-democracy demonstrators on Tiananmen Square</a> in 1989, in which hundreds are believed to have died, and many more were incarcerated.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1399677191210799104"}"></div></p>
<p>Without excusing the excesses of the Tiananmen crackdown, however, the totality of Deng’s contribution to his country’s transition from <a href="https://www.abc.net.au/news/2018-12-01/40-years-of-reform-that-transformed-china-into-a-superpower/10573468">economic laggard to modern superpower</a> cannot be overstated.</p>
<p>Deng’s extraordinary achievements are too many to list here, but three dates stand out in his efforts to set his country on a path, as he put it, of “<a href="https://www.washingtonpost.com/news/monkey-cage/wp/2018/12/19/40-years-ago-deng-xiaoping-changed-china-and-the-world/">reform and opening</a>”.</p>
<p>The fact he used both words — reform and opening — summed up his approach to wrenching his country from its revolutionary past to chart another course.</p>
<p>These dates are:</p>
<p><strong>1978:</strong> Deng’s authority manifested itself at the <a href="https://www.bbc.com/news/world-asia-china-24846812">Third Plenum of the 11th Central Committee of the Chinese Communist Party</a>. </p>
<p>In modern Chinese history, this event is seen as the starting point for the massive shifts that would loosen up China’s economy and dismantle what was known as the “bamboo curtain” that had shielded it from the outside world.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-communist-party-claims-to-have-brought-prosperity-and-equality-to-china-heres-the-real-impact-of-its-rule-163350">The Communist Party claims to have brought prosperity and equality to China. Here's the real impact of its rule</a>
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<p><strong>1980:</strong> In a speech whose importance is sometimes lost in historical accounts, Deng laid down the “<a href="http://cpcchina.chinadaily.com.cn/fastfacts/2010-10/18/content_11425381.htm">Great Tasks</a>” facing China in the last two decades of the 20th century and beyond. </p>
<p>Among those tasks was the <a href="https://press-files.anu.edu.au/downloads/press/n4267/pdf/book.pdf">quadrupling of gross national product by 2000</a>, an aspiration that was initially scoffed at. Under the Deng-initiated reforms, which included the de-collectivisation of agriculture and the unleashing of an entrepreneurial business class, China achieved that goal in a canter. </p>
<p><strong>1992:</strong> Deng, then 90 and in bad health, embarked on what was described as a <a href="https://supchina.com/2021/01/20/deng-xiaopings-secret-southern-tour-and-its-enduring-legacy/"><em>nanxun</em>, or southern inspection tour</a>, in which he re-energised the reform process after it had fallen into the doldrums following Tiananmen. </p>
<p>The fallout from the massacre included the purging of reformist leader Zhao Ziyang, who was general secretary of the Communist Party and a former premier. A ruthless Deng elected not to protect his protégé. </p>
<p>Historians may well come to regard Deng’s <em>nanxun</em> as not simply his last hurrah, but his most enduring contribution to China’s surging power and influence.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/404757/original/file-20210607-23-1fx4zbv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/404757/original/file-20210607-23-1fx4zbv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=709&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404757/original/file-20210607-23-1fx4zbv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=709&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404757/original/file-20210607-23-1fx4zbv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=709&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404757/original/file-20210607-23-1fx4zbv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=891&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404757/original/file-20210607-23-1fx4zbv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=891&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404757/original/file-20210607-23-1fx4zbv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=891&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Deng Xiaoping meeting delegates of the Communist Party Central Committee in Beijing in 1992.</span>
<span class="attribution"><span class="source">AP</span></span>
</figcaption>
</figure>
<p>In all of this, it is important to remember that in 1978, China’s economy was about the <a href="https://statisticstimes.com/economy/united-states-vs-china-economy.php">same size as Italy’s</a>. In 2021, China’s economy on a nominal GDP basis is the world’s second largest behind the United States, and should surpass the US in the next few years. At the same time, China has lifted 800 million people out of poverty. Never before in human history have we seen anything quite like this.</p>
<p>Of course, Deng did not achieve all of this by himself, but he was prepared to embrace what Mao had sought to suppress in a single-minded desire to maintain control over party and country. This was the extraordinary energy and enterprise of the Chinese people. </p>
<p>Deng’s various slogans, such as “<a href="http://www.chinadaily.com.cn/opinion/2007-10/19/content_6243676.htm">to get rich is glorious</a>” captured the moment, and indeed helped to unleash the full potential of the Chinese people.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/404758/original/file-20210607-28173-14408um.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/404758/original/file-20210607-28173-14408um.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404758/original/file-20210607-28173-14408um.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404758/original/file-20210607-28173-14408um.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404758/original/file-20210607-28173-14408um.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404758/original/file-20210607-28173-14408um.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404758/original/file-20210607-28173-14408um.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Deng is celebrated in China today as the chief architect of the country’s reform and opening up.</span>
<span class="attribution"><span class="source">Shi Donghong/AP</span></span>
</figcaption>
</figure>
<h2>Biding its time no more</h2>
<p>None of this is to suggest Deng’s legacy will be untroubled, or that China’s surging power and influence will continue to build without impediments. </p>
<p>The country’s continuing economic transformation resembles a high-wire act as China’s leadership seeks to maintain its footing in a world in flux as American power recedes. China’s economy is far from having reached a plateau in which consumer demand provides a buffer against ups and downs in its export markets. These are challenging times for the post-Deng leadership in Beijing.</p>
<p>Deng himself may well have looked askance on the emergence of a <a href="https://www.nytimes.com/2018/09/28/world/asia/xi-jinping-china-propaganda.html">personality cult around paramount leader Xi Jinping</a>. In his “Great Tasks” speech of 1980, Deng had warned against this very development.</p>
<p>This was born of his own experiences at the hands of a tyrannical Mao. In that speech, Deng had emphasised collective leadership in the knowledge that untrammelled power corrupts.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-world-has-a-hard-time-trusting-china-but-does-it-really-care-119807">The world has a hard time trusting China. But does it really care?</a>
</strong>
</em>
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<p>What has certainly been left astern is Deng’s advice that China should “keep a low profile” or “bide its time” – <a href="https://www.globaltimes.cn/content/661734.shtml"><em>tao guang yang hui</em></a> — as its power and influence grows. The use of this phrase has been variously interpreted over the years as either a warning from Deng that China should avoid throwing its weight around or a ruse in which Beijing stealthily accumulates power without making it too obvious.</p>
<p>Under Xi’s brand of Chinese nationalism, the <em>tao guang yang hui</em> approach has been discarded. This may have been inevitable as China becomes more powerful, but it is at least debatable whether a shrewd Deng Xiaoping would have countenanced an approach that risked antagonising much of the rest of the world.</p><img src="https://counter.theconversation.com/content/156836/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Walker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China’s staggering growth over the past 40 years is due to the force of personality and risk-taking of a man who stood barely 1.5m tall.Tony Walker, Vice-chancellor's fellow, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1317932020-02-14T16:16:23Z2020-02-14T16:16:23ZCoronavirus: the blow to the Chinese economy could be felt for years<p>Investors are still being fairly complacent about the novel coronavirus. After the number of new daily cases suddenly shot up to more than 15,000 on February 12 following more than a week of decline, there were <a href="https://www.bbc.co.uk/news/topics/c9qdqqkgz27t/ftse-100">some jitters</a> in the markets. With Chinese authorities saying the increase was <a href="https://www.bbc.co.uk/news/world-asia-china-51482994">due to</a> a decision to broaden the definition for diagnosing people, <a href="https://www.bbc.co.uk/news/business/market-data">there were falls</a> in the region of 1% in European markets, and smaller retrenchments in Asia and North America. </p>
<p>It is a fairly minor shift in sentiment after a few days in which investor concerns <a href="https://www.ft.com/content/2c924a62-4d7e-11ea-95a0-43d18ec715f5">had been</a> steadily receding. There appears to be a real danger of underestimating the likely economic impact of this crisis. China’s manufacturing sector in particular faces an unprecedented challenge because supply chains have been so seriously disrupted. </p>
<p><strong>Coronavirus daily new cases</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=278&fit=crop&dpr=1 600w, https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=278&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=278&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=349&fit=crop&dpr=1 754w, https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=349&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/315485/original/file-20200214-11023-h4qdze.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=349&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.worldometers.info/coronavirus/coronavirus-cases/">Worldometers</a></span>
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<p><a href="https://www.ntdtv.com/gb/2020/02/13/a102776771.html">Well over</a> 80 cities have gone into lockdown, including the entire areas of five Chinese provinces – Hubei, Liaoning, Jiangxi, An’hui and Inner Mongolia – and four main cities in Zhejiang province, affecting well over 275 million people. Since February 10, Beijing and Shanghai have further restricted the movement of people, having already extended the Chinese New Year break. </p>
<p>My parents live in Jiangxi province and are among millions semi-quarantined at home. The local government allows one person from each household to go out every two day to buy necessities. Even in cities not under compulsory lockdown, there are rarely people on the streets. The tweet below shows the Nanjing Road in Shanghai, the busiest shopping precinct in the country. It was taken on January 26 but the situation is not much better now. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1221476706722177031"}"></div></p>
<p>This is taking a serious toll on the Chinese economy. No statistics on the actual losses are available yet, but for example, the number of intercity passengers on public transport during the new year break <a href="http://scitech.people.com.cn/n1/2020/0209/c1007-31578265.html">was only 60% of 2019</a> levels. </p>
<p>Xibei, a famous dining brand with 350 restaurants and RMB5.7 billion (£628 million) annual revenues, <a href="https://finance.sina.com.cn/chanjing/gsnews/2020-02-10/doc-iimxxstf0155561.shtml">said takings</a> during the holiday period were down 87% year on year. The contrast with last year, when Chinese tourism, retail and catering revenues <a href="https://www.iimedia.cn/c400/67732.html">all rose</a> by around 8% during the new year period, is likely to be huge. </p>
<p>The problems in the Chinese services sector are primarily a demand shock. This will probably rebound once the epidemic is contained, <a href="https://theconversation.com/coronavirus-does-not-look-like-a-black-swan-event-here-are-some-reasons-to-be-cautiously-optimistic-130564">just like</a> during the Sars outbreak of 2003. The Chinese inflation rate based on the consumer price index (CPI) <a href="https://www.inflation.eu/inflation-rates/china/historic-inflation/cpi-inflation-china-2003.aspx">turned down</a> during peak crisis between February and June 2003, then quickly shifted to positive. </p>
<h2>Makers not marching</h2>
<p>This time around in manufacturing, <a href="https://data.worldbank.org/indicator/NV.IND.MANF.ZS">which comprises</a> nearly a third of the Chinese economy, there is a much bigger shock to the supply side than in 2003. Factory lines have ground to a halt because of the lockdown. You can see the gap between the demand and supply of Chinese goods by comparing the inflation rate with the level of optimism among the country’s manufacturers, as measured by the purchasing managers’ index (PMI). </p>
<p>The Chinese CPI in January <a href="http://www.stats.gov.cn/english/">rose 5.4%</a>, the highest monthly rate since October 2011, while the manufacturing PMI <a href="http://www.stats.gov.cn/english/PressRelease/202002/t20200203_1724922.html">hit a three-month low</a> of 50%. The fact that inflation is actually rising this time when it fell in 2003 is because this time, both supply and demand are falling but supply is falling faster. </p>
<p>To keep the economy afloat, the government <a href="https://www.bloomberg.com/news/articles/2020-02-03/china-adds-cash-to-ensure-liquidity-as-financial-markets-sink">has rolled out</a> a series of financial measures, including lower borrowing rates, loan extensions, tax reductions and waivers, and an injection of RMB200 billion (£22 billion) in market liquidity. This will ease financial strains, but not address the underlying problems in manufacturing supply chains. </p>
<p>Many manufacturers <a href="https://finance.sina.com.cn/chanjing/gsnews/2020-02-10/doc-iimxxstf0284136.shtml">cannot resume</a> work because they can’t get supplies of raw materials and their workforce is quarantined. They are having problems with orders, wage payments, cash flow, order deliveries, debt repayments, and logistics and transport. Many are also facing penalties for breaching contracts. </p>
<p>Many companies are also having to suspend operations by order of the local government. For example, out of 29,814 firms that have applied to resume operations in Hangzhou, the capital city of Zhejiang province, just 162 <a href="http://finance.eastmoney.com/a/202002101378534061.html">had been given authorisation</a> by February 10.</p>
<p>Many smaller companies can’t get authorisation because they are less capable of sourcing face masks than bigger companies. They are also more wary of letting out-of-town workers return because they usually have less dormitory space so can’t give them a room to themselves – another key precaution against the spread of infection. </p>
<p><a href="https://www.thepaper.cn/newsDetail_forward_5721015">A poll</a> of 1,295 firms by the Chinese Academy of Social Science (CASS) published on February 1 found that 43.9% expected their business will post a loss in the coming year. It won’t take long before liquidity problems morph into solvency problems, especially for smaller companies. Only 9% of respondents to <a href="https://www.thepaper.cn/newsDetail_forward_5721015">the CASS survey</a> thought they would survive a month of suspended operations, while two-thirds said that a two-week shutdown was all they could take. </p>
<h2>Global supply chains</h2>
<p>This is already disrupting the world supply chain for manufacturing, hitting everyone from big <a href="https://www.spglobal.com/platts/en/market-insights/latest-news/metals/020720-s-koreas-hyundai-motor-to-stop-production-as-virus-curtails-auto-parts-supply">South Korean car manufacturers</a> like Hyundai and Kia to small tech companies in the US like <a href="https://www.wsj.com/amp/articles/chinas-factories-struggle-to-resume-operations-after-virus-shutdown-11581157800">Agilian Technology</a>. </p>
<p>Some Chinese manufacturers, such as number-one Apple supplier Foxconn, <a href="https://www.ft.com/content/9b5f604e-4c8c-11ea-95a0-43d18ec715f5">are resuming work</a> in phases, but they still need more time to reach full capacity because only local employees can return immediately. Workers travelling from elsewhere have to isolate themselves at home for seven to 14 days before returning. The next Apple smartphone, due in March, could be delayed.</p>
<p>The new coronavirus is a major shock to all market participants in China. Even if the outbreak is contained over the next few weeks, it will still have a long-term impact. The demand and supply shocks could combine to <a href="https://www.theepochtimes.com/china-facing-down-specters-of-stagflation-with-new-stimulus-measures_3201143.html">drive China into stagflation</a>, where there is inflation and weak economic growth at the same time, and for which there are no effective monetary or fiscal policies. </p>
<p>The uncertainty created by the outbreak, compounded by China’s trade war with the US, is going to force companies to re-examine their exposure to Chinese manufacturing and the whole idea of a global supply chain. It wouldn’t be surprising to see rival countries developing supply hubs of closely linked manufacturers of the kind that China has created very successfully. This, too, looks like bad news for China. The novel coronavirus is prompting a new period of global instability whose ramifications could be felt for many years to come.</p><img src="https://counter.theconversation.com/content/131793/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chusu He would like to thank Professor Alistair Milne of Loughborough University and the freelance journalist Elena Berton, both of whom provided input for the article.
</span></em></p>Thousands of Chinese producers are at risk of going bust as a result of the outbreak.Chusu He, Lecturer in Finance, Coventry UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1220312019-08-22T07:04:54Z2019-08-22T07:04:54ZTrust Me, I’m An Expert: Why the Hong Kong protesters feel they have nothing to lose<p>Last weekend, hundreds of thousands of people again took to the streets in Hong Kong to protest against the government – the <a href="https://www.scmp.com/news/hong-kong/politics/article/3023331/three-nights-tear-gas-free-protests-hong-kongs-anti">11th straight weekend</a> of demonstrations that began in June over a proposed extradition bill.</p>
<p>But after more than two months of increasingly violent clashes between demonstrators and the police, this protest was peaceful. No tear gas was fired.</p>
<p>China expert Graeme Smith, one of the hosts of <a href="https://omny.fm/shows/the-little-red-podcast/playlists/podcast">The Little Red Podcast</a>, devoted <a href="https://omny.fm/shows/the-little-red-podcast/desperate-hong-kong-the-movement-behind-the-mask">this week’s episode to the Hong Kong protest movement</a>, with his co-host, Louisa Lim, on the ground in Hong Kong talking to people about their perseverance in the face of a potentially severe military crackdown from Beijing.</p>
<p>In this episode of Trust Me, Smith discusses where the protests go from here, whether there’s any chance for dialogue between the two sides, and the impact of the increasingly nationalist vitriol aimed at protesters on social media – and on the streets of Hong Kong. </p>
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Read more:
<a href="https://theconversation.com/beijing-is-moving-to-stamp-out-the-hong-kong-protests-but-it-may-have-already-lost-the-city-for-good-121815">Beijing is moving to stamp out the Hong Kong protests – but it may have already lost the city for good</a>
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</em>
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<p>Smith believes the protests aren’t going to stop until Chief Executive Carrie Lam definitively withdraws the contentious extradition bill and launches an inquiry into police violence against the protesters.</p>
<p>And this is unlikely so long as Lam – and her backers in Beijing – continue to stand firm in their positions and refuse to negotiate.</p>
<p>So, no one knows how this might end, Smith says. </p>
<blockquote>
<p>A lot of the protesters, especially those in their 20s, feel they basically have nothing to lose and they’re going to dig in for the long haul.</p>
</blockquote>
<h2>New to podcasts?</h2>
<p>Podcasts are often best enjoyed using a podcast app. All iPhones come with the Apple Podcasts app already installed, or you may want to listen and subscribe on another app such as Pocket Casts (click <a href="https://pca.st/VTv7">here</a> to listen to Trust Me, I’m An Expert on Pocket Casts).</p>
<p>You can also hear us on Stitcher, Spotify or any of the apps below. Just pick a service from one of those listed below and click on the icon to find Trust Me, I’m An Expert.</p>
<p><a href="https://itunes.apple.com/au/podcast/trust-me-im-an-expert/id1290047736?mt=2&ign-mpt=uo%3D8"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL2F1L3BvZGNhc3RzL3RydXN0LW1lLXBvZGNhc3QucnNz"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://www.stitcher.com/podcast/the-conversation/trust-me-im-an-expert"><img src="https://images.theconversation.com/files/233716/original/file-20180827-75981-pdp50i.png" alt="Stitcher" width="300" height="88"></a> <a href="https://tunein.com/podcasts/News--Politics-Podcasts/Trust-Me-Im-An-Expert-p1035757/"><img src="https://images.theconversation.com/files/233723/original/file-20180827-75984-f0y2gb.png" alt="Listen on TuneIn" width="318" height="125"></a></p>
<p><a href="https://radiopublic.com/trust-me-im-an-expert-Wa3E5A"><img class="alignnone size-medium wp-image-152" src="https://images.theconversation.com/files/233717/original/file-20180827-75990-86y5tg.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" alt="Listen on RadioPublic" width="268" height="87"></a> <a href="https://open.spotify.com/show/7myc7drbLJVaRitAMXLB7V"><img src="https://images.theconversation.com/files/237984/original/file-20180925-149976-1ks72uy.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" width="268" height="82"></a> </p>
<hr>
<p><strong>Credits:</strong></p>
<p>Recording and editing by Graeme Smith, Justin Bergman and Sunanda Creagh.</p>
<p><strong>Additional audio</strong></p>
<p><em>Kindergarten by Unkle Ho, from <a href="https://www.elefanttraks.com/">Elefant Traks.</a></em></p>
<p><em><a href="https://www.youtube.com/watch?v=ifIw3wTeolE">CNN</a> report</em></p>
<p><em>BBC <a href="https://www.youtube.com/watch?v=oyKXCa9KI0Q">report</a></em></p>
<p><em><a href="https://podcasts.apple.com/au/podcast/the-little-red-podcast/id1136685378">The Little Red Podcast</a></em></p>
<h2>Images</h2>
<p>AAP/EPA/VIVEK PRAKASH</p><img src="https://counter.theconversation.com/content/122031/count.gif" alt="The Conversation" width="1" height="1" />
Hong Kong leader Carrie Lam has indicated she's open to dialogue. But unless she meets the demonstrators' demands, the protest movement isn't going to end anytime soon.Sunanda Creagh, Senior EditorJustin Bergman, International Affairs EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1172862019-05-21T21:31:23Z2019-05-21T21:31:23ZWhat China wants: 3 things motivating China’s position in trade negotiations with the US<p>Relations between the U.S. and China have deteriorated sharply in recent days after trade negotiations broke down, leading some to <a href="https://www.nytimes.com/2019/05/20/business/huawei-trump-china-trade.html">suggest we are on the cusp</a> of a new “cold war.” </p>
<p>President Donald Trump <a href="https://www.cnbc.com/2019/05/05/trump-says-tariffs-on-200-billion-of-chinese-goods-will-increase-to-25percent-on-friday.html">blames the resumption of hostilities</a> on China. Specifically, he and his negotiators say their Chinese counterparts backtracked on an agreement to change laws aimed at enforcing the deal, prompting Trump to raise tariffs on US$200 billion in imports and China to retaliate. Only a few weeks earlier, the two sides seemed very close to a deal. </p>
<p>So what led to China’s change of heart – if there was one? </p>
<p>As an <a href="https://scholar.google.com/citations?user=2ZSlHs4AAAAJ&hl=en&oi=ao">expert on China’s development and economic reform</a>, I believe the answer lies in trying to understand the situation from the Chinese perspective. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/275737/original/file-20190521-23829-1pz0lqx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/275737/original/file-20190521-23829-1pz0lqx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/275737/original/file-20190521-23829-1pz0lqx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/275737/original/file-20190521-23829-1pz0lqx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/275737/original/file-20190521-23829-1pz0lqx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/275737/original/file-20190521-23829-1pz0lqx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/275737/original/file-20190521-23829-1pz0lqx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chinese and U.S. negotiators seemed close to a deal – until they weren’t.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/US-China-Trade-Talks/174ae879f3644b73a1c11c5c51044ae0/25/0">AP Photo/Jacquelyn Martin</a></span>
</figcaption>
</figure>
<h2>China’s rise</h2>
<p>China <a href="https://news.cgtn.com/news/3041544f79597a6333566d54/share.html">was a poor country</a> not long ago. Its leaders effectively developed its productive and institutional capabilities by learning from foreign countries while allowing domestic companies to flourish over four decades of reform. </p>
<p>While this is commendable, <a href="https://heinonline.org/HOL/LandingPage?handle=hein.journals/mercer65&div=43&id=&page=&t=1558447275">as my research shows</a>, and something <a href="http://www.doi.org/10.1007/s12116-012-9110-y">other developing economies should emulate</a>, it has also been controversial, particularly as China’s economy has become the <a href="https://www.investopedia.com/insights/worlds-top-economies/">world’s second-largest</a>.</p>
<p>In 2015, a <a href="https://www.china-briefing.com/news/made-in-china-2025-explained">10-year plan known as “Made in China 2025”</a> put in place a set of incentives to encourage Chinese companies to move from basic manufacturing to high-tech sectors such as electric cars, robotics and artificial intelligence. China’s goal is to have its companies globally competitive in these sectors by 2025. </p>
<p>However, in order to meet these ambitious goals, in some cases Chinese companies must rely on subsidies, government funding, forced technology transfer and intellectual property theft. To foreign political and business leaders, these practices smack of unfair competition. </p>
<p>Now that China has established strong capabilities, the threat of overtaking the U.S. in high-tech areas such as AI seems real and the methods being used appear unfair. That’s why, as part of the negotiations, the Trump administration <a href="https://www.nytimes.com/2019/05/06/us/politics/trump-tariffs-china.html">was trying to get China to end its practice</a> of forced technology transfer by changing their laws.</p>
<p>The U.S. said China agreed to do this, but the <a href="https://www.nytimes.com/2019/05/06/us/politics/trump-tariffs-china.html">Chinese rejected</a> those claims. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/275732/original/file-20190521-23845-1gxmpal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/275732/original/file-20190521-23845-1gxmpal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=440&fit=crop&dpr=1 600w, https://images.theconversation.com/files/275732/original/file-20190521-23845-1gxmpal.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=440&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/275732/original/file-20190521-23845-1gxmpal.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=440&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/275732/original/file-20190521-23845-1gxmpal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=553&fit=crop&dpr=1 754w, https://images.theconversation.com/files/275732/original/file-20190521-23845-1gxmpal.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=553&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/275732/original/file-20190521-23845-1gxmpal.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=553&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trade officials celebrate China’s entry into WTO in 2001.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/EURO-AP-I-CHE-GEV101-SWITZERLAND-WTO-TRADE-CHINA/80ab8142c3e0da11af9f0014c2589dfb/3/0">AP Photo/Donald Stampfli</a></span>
</figcaption>
</figure>
<h2>China’s internal debate</h2>
<p>While China will understandably not give up its development goals to please the U.S., the methods used to achieve them are also controversial within China. </p>
<p>There are those who want to continue to reform the economy by making it more efficient and letting private companies – rather than the government – handle business decisions. Others want to keep the government at the center of things by operating state-owned companies and providing support to other sectors of the economy, old and new. </p>
<p>It is generally accepted that the <a href="https://www.wsj.com/articles/a-better-way-to-deal-with-beijing-11557875502?emailToken=c80d35e30f87e13834bccf307eed7992ais34hre20fDuqLs5Z/GDc/1R9YjqnHfRzHKWpiOebOtUpOEONRyHkZBdjFQuuLqIi7rw03Tj4nfyCauX5xHsg%3D%3D&reflink=article_email_share">reformers would like to see some of the very changes</a> that the Trump administration has been pushing for, such as more protection for intellectual property rights, open competition and a modern financial system to allow better global integration and a free-floating currency.</p>
<p>Reforms such as these carry risks, however. China’s economy has been <a href="https://www.washingtonpost.com/world/chinese-economy-slows-to-lowest-growth-rate-in-28-years/2019/01/21/c3fccbf0-1d66-11e9-bda9-d6efefc397e8_story.html?noredirect=on&utm_term=.306fdd6423cd">slowing</a>, and some policymakers worry that now is not the time to rock the boat. In times of economic distress, China has shown a tendency to fall back on <a href="https://www.scmp.com/business/article/2105987/shanghais-price-controls-new-homes-toughest-china-says-jinmao-chief">top-down controls</a> that were the norm when China had a centrally planned economy. </p>
<p>China has been here before. Based on my research on the process leading to <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.488.581&rep=rep1&type=pdf">China’s entry into the World Trade Organization</a> in 2001, China’s internal debates were intense. Some policymakers believe that <a href="https://www.iatp.org/sites/default/files/China_and_the_WTO_The_Politics_Behind_the_Agre.htm">China gave up too much</a> for the privilege, including changing many domestic laws – just as the Trump administration is seeking. </p>
<p>Those memories are likely influencing the debate in China today. </p>
<h2>National humiliation</h2>
<p>A third factor provides an overarching context that is deeply integrated with the first two: China’s leaders and people will not tolerate “humiliation” by foreigners.</p>
<p>In the 1800s, <a href="https://www.nytimes.com/2018/07/02/books/review/stephen-r-platt-imperial-twilight.html">Western powers won two so-called opium wars</a> and received control over treaty-ports in China, allowing them to impose better terms of trade for themselves. The “<a href="https://www.latimes.com/world/la-fg-china-trade-war-tariffs-colonialism-humiliation-20190513-story.html">century of humiliation</a>” that followed is known to all Chinese, and China’s leaders have promised it will never happen again. </p>
<p>Fast forward to today, and President Xi Jinping’s <a href="https://www.dw.com/en/xi-jinping-and-the-chinese-dream/a-43685630">“China Dream”</a> is to establish China as a leading world power on par with the U.S. Hence, President Xi cannot be seen at home as weak by giving into American demands. China feels it must preserve its path to domestic economic strength and decide on its own what changes to make to its economic system. </p>
<p>These sensitivities underlie the instability of the current U.S.-China negotiations and the relationship more generally. They also show why, even though China doesn’t want a trade war with the U.S., finding a deal that satisfies both countries is not impossible, but will be tricky. </p>
<p>China’s reformers seem to have lost the upper hand in recent weeks, making it even less likely that the Chinese will make changes that are compatible with what the U.S. wants. Ultimately, any deal will need to convey to Chinese citizens that President Xi did the right thing for the country. </p>
<p>Combine this with the fact that Trump may seem to Americans to have “won” the trade war simply by appearing tough on China – whether or not a deal is struck – and the prospects of a positive resolution look dim.</p><img src="https://counter.theconversation.com/content/117286/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Penelope B. Prime is the founding director of the China Research Center, a non-profit organization based in Atlanta, Georgia. </span></em></p>US-China relations are fast deteriorating, leading to fears that a ‘cold war’ may be brewing. A China expert explains what’s motivating its behavior.Penelope B. Prime, Clinical Professor of International Business, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1135452019-03-14T19:04:27Z2019-03-14T19:04:27ZChinese-Australia relations may not be ‘toxic’, but they do need to keep warming up<p>When former Trade Minister Andrew Robb took to the ABC’s <a href="https://www.abc.net.au/news/2019-03-12/andrew-robb-blames-coalition-leaders-for-toxic-china-relations/10891384">AM program</a> to sound off about a “toxic” relationship between Australia and China, he exposed a rippling debate about how to manage an increasingly comlex foreign and security policy challenge.</p>
<p>Long gone are the days of the John Howard formula that <a href="https://pmtranscripts.pmc.gov.au/release/transcript-10335">Australia did not have to choose</a> between its history, meaning America, and its geography, meaning China. Choices are no longer binary.</p>
<p>While the Robb word “toxic” may be an exaggeration, stresses in Australia-China relations are such it is clear we have entered a new and more challenging phase.</p>
<p>For a start, China is undergoing what is, arguably, the most testing moment of an economic transformation that began in 1978 at the third plenary of the 11th Central Committee of the Chinese Communist Party. This is when <a href="https://theconversation.com/world-politics-explainer-deng-xiaopings-rise-to-power-103032">Deng Xiaoping re-emerged</a> to initiate one of the more remarkable economic shifts of the modern era.</p>
<p>Apart from a hiatus caused by the Tienanmen uprising in 1989, and an economic soft-landing in the mid-1990s, China has bounded ahead economically, and has seemed unstoppable – until now.</p>
<p>China’s economy and political system has encountered the sort of difficulties that were inevitable. Put simply, an investment driven – as opposed to consumer-led – model is running its course, <a href="https://www.bloomberg.com/news/articles/2019-02-24/china-deleveraging-is-dead-as-34-trillion-debt-habit-roars-back">piling up massive government and bank debt in the process</a>.</p>
<p>China risks becoming caught in a <a href="https://www.bloomberg.com/opinion/articles/2019-01-13/xi-s-leading-china-s-economy-into-the-middle-income-trap">“middle income trap”</a> in which a developing country, having enacted the easier reforms, gets stuck in second gear in its effort to push ahead with its economic transformation.</p>
<p>You can only build so many road, bridges, fast trains, airports, ports and housing developments. Many of the latter have become “ghost cities”.</p>
<p>At this month’s National People’s Congress, the annual session of China’s “parliament”, Premier Li Keqiang gave what was, by Chinese standards for these sort of cheerleading events, an <a href="https://www.latimes.com/world/la-fg-china-economy-growth-20190305-story.html">unusually downbeat assessment of challenges ahead</a>.</p>
<p>China, Li said, faces difficulties “of a kind rarely seen in many years”.</p>
<p>What is undeniable is that China’s economy is faltering, its ability to create millions of new jobs annually to employ a restless population is being stretched, and its management of a continuing economic transformation has come under unusual stress. <a href="https://www.bbc.com/news/business-45899310">US-China trade tensions</a> are not helping.</p>
<p>In counterpoint to the need for a more dynamic economic environment, its leadership, under President Xi Jinping, is asserting even tighter political controls when it should be giving freer rein to its entrepreneurial class.</p>
<p>This is the central contradiction of a model that has delivered what is the most extraordinary event in world economic history since the industrial revolution. But that model clearly has its limitations compared with those, say, of neighbouring Japan, South Korea and Taiwan.</p>
<p>From an Australian perspective, a slowing and, perhaps more to the point, anxious China is not good news. While economists might argue that a slowdown and thus the need for Beijing to stimulate its economy by ramping up infrastructure projects will benefit iron ore and coal exporters, <a href="https://www.abc.net.au/news/2019-01-29/china-not-house-price-downturn-the-major-risk-deloitte/10750342">economic pressures more generally should be concerning</a>.</p>
<p>A Chinese regime that feels itself under stress from within and without may prove to be more cantankerous, and unpredictable. Australian policymakers should be mindful of the consequences of China getting through this difficult stage without mishap.</p>
<p>Of course, forests have been felled publishing predictions China would be unable to maintain its remarkable transformation since early glimmers of an opening to the outside world appeared in 1978, two years after Mao Zedong’s death.</p>
<p>This brings us back to Andrew Robb’s observation about a “toxic” relationship between Beijing and Canberra. Referring to the shelving of a plan to develop a health precinct in China to match that of the Texas Medical Centre – the world’s largest medical facility – Robb said central government officials had kyboshed the arrangement due to ongoing tensions with Australia.</p>
<p>Australian medical professionals would have helped establish the facility. Robb said Landbridge (the company for which Robb was consulting) was </p>
<blockquote>
<p>told in no uncertain terms by the seniors officials that unfortunately the relationship between Australia and China had become so toxic that this would be put in the bin.</p>
</blockquote>
<p>Leaving aside Robb’s own chagrin at losing a lucrative consultancy, what is the fair judgement about the state of Australia-China relations?</p>
<p>And, what of Robb’s criticism of sections of the Australian security establishment, notably the Australian Strategic Policy Institute? He accused ASPI, a hothouse of China negativity, of being “a mouthpiece of the US security agencies and its defence industry”.</p>
<p>Given ASPI’s hawkish views on China more generally, Robb has a point.</p>
<p>His assessment is correct that China-Australia relations were off-track when the decision was made to scupper the Landbridge-proposed medical facility. But it is also the true that by the end of last year the relationship had been “reset”.</p>
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Read more:
<a href="https://theconversation.com/australia-and-china-push-the-reset-button-on-an-important-relationship-106428">Australia and China push the 'reset' button on an important relationship</a>
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<p>Foreign Minister <a href="https://theconversation.com/australia-and-china-push-the-reset-button-on-an-important-relationship-106428">Marise Payne went to China in November</a> for what was described as a cordial exchange. This followed a two-year freeze in relations during which no senior Australian official was welcomed in Beijing.</p>
<p>China had made no secret of its displeasure over speeches delivered over time by both then <a href="https://www.malcolmturnbull.com.au/media/keynote-address-at-the-16th-iiss-asia-security-summit-shangri-la-dialogue">Prime Minister Malcolm Turnbull</a> and then <a href="https://foreignminister.gov.au/speeches/Pages/2017/jb_sp_170313a.aspx">Foreign Minister Julie Bishop</a> in which they had criticised Beijing’s expansionist activities in the South China Sea, and, in Bishop’s case, China’s political model.</p>
<p>Turnbull compounded the situation when he misappropriated an expression attributed to Mao in proclaiming the People’s Republic on October 1, 1949. Australia had “stood up”, Turnbull said, when unveiling laws designed to curb foreign interference in Australian domestic affairs.</p>
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Read more:
<a href="https://theconversation.com/australia-needs-to-reset-the-relationship-with-china-and-stay-cool-97370">Australia needs to reset the relationship with China and stay cool</a>
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<p>Next day, Turnbull made things worse by <a href="https://www.abc.net.au/news/2017-12-09/malcolm-turnbull-says-he-will-stand-up-for-australia/9243274">repeating Mao’s words in Mandarin</a> in his description of legislation that was clearly aimed at Chinese influence.</p>
<p>So what of Robb’s comments? Whatever toxicity existed between Canberra and Beijing seems to have dissipated somewhat. However, real risks remain in management of what is Australia’s most challenging relationship.</p>
<p>It is no good pretending otherwise. China is not a benign power. It will seek to get away with what it can. It resists abiding by a roadmap for a rules-based international order, as we understand it. It will use cyber technology ruthlessly to advance its interests by dubious means, on occasions. It will “disappear” foreign nationals of those countries which incur its displeasure. It will invest in agents of influence in the Australian system. This includes universities.</p>
<p>All this requires a level of vigilance on the part of the security agencies, and, possibly, a new White Paper aimed specifically at just how Australia might manage a complex relationship that is likely to become, more, not less, complicated.</p>
<p>Bear in mind <a href="https://dfat.gov.au/trade/resources/Documents/chin.pdf">one in three export dollars</a>depends on a functioning relationship with China.</p>
<p>This is an unsatisfactory situation, but it is the reality.</p>
<p>On the other hand, no purpose is served by yielding to a Canberra security establishment whose machinations risk chilling a relationship that needs to be warmed up, not cooled down. </p>
<p>Former ambassador to China, Stephen Fitzgerald, proffered some good advice this week when he said in a <a href="https://www.theaustralian.com.au/opinion/columnists/troy-bramston/why-canberra-must-reset-its-relationship-with-china/news-story/ab9403cb437c2f53b68ca760609908c8">newspaper interview</a> that Australia needed to deepen its engagement with China rather than draw back, since, unlike the US, we are “living in a Chinese world”.</p>
<p>That, whether we like it or not, is the case.</p><img src="https://counter.theconversation.com/content/113545/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Walker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Former Trade Minister Andrew Robb’s criticism may be a little exaggerated, but there’s no doubt the relationship is tricky and still needs work.Tony Walker, Adjunct Professor, School of Communications, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1093022019-01-07T13:43:25Z2019-01-07T13:43:25ZTikTok: the world’s most valuable startup that you’ve never heard of<figure><img src="https://images.theconversation.com/files/254102/original/file-20190116-163280-kx79oi.png?ixlib=rb-1.1.0&rect=0%2C1%2C1200%2C790&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Ricky Kresslein / Shutterstock.com</span></span></figcaption></figure><p>Anticipation has long been building about the impending <a href="https://www.ft.com/content/3530f178-6e50-11e8-8863-a9bb262c5f53">takeover of the tech world</a> by Chinese digital giants like Alibaba, Tencent, Baidu, and JD. Efforts so far, however, have been largely disappointing. The most popular messaging app in the West is WhatsApp, not WeChat; people use PayPal, not Alipay, for digital payments; Google dominates the search market, not Baidu. </p>
<p>Indeed, Google, Facebook, Instagram, Snap, Spotify, and Amazon, have barely noticed the competitive impact of their Chinese equivalents. While China has found great success in global hardware markets, they have had much less success with software. That is, until now. </p>
<p>You may not have heard of it, but TikTok became one of 2018’s most downloaded mobile apps for Apple and Android devices <a href="https://www.digitalmusicnews.com/2018/11/02/tiktok-app-downloads/">in the US and Europe</a>, unseating the likes of YouTube, Instagram, and Snapchat. TikTok has already been downloaded more than 80m times in the US, logging 4m downloads from the App Store in October alone. It is also one of the most popular apps on Google Play. </p>
<h2>What is TikTok?</h2>
<p>TikTok is a video sharing platform with a twist. Videos can be no longer than 15 seconds and they are based on various themes: music, cooking, travel, dance, fashion, and so on. Users create these short videos, use simple tools to add music and special effects, and share them on the site. The most popular clips are high on entertainment value, with a premium on instant gratification. Similar to Vine, <a href="https://medium.com/@vine/important-news-about-vine-909c5f4ae7a7">which shut down in 2016</a>, TikTok can be thought of as a video version of Instagram or Snapchat. </p>
<p>TikTok comes from China, but, interestingly, it is not owned by one of the Chinese tech giants. Despite massive investments in video platforms by the likes of Alibaba, Tencent, and Baidu, none of them dominates this area. TikTok – known locally as Douyin – was launched in 2016 by ByteDance, a Beijing-based tech company traditionally focused on news. Its news app, called Toutiao, uses advanced AI algorithms that learn user preferences, then provides customised news feeds. Bytedance uses the same algorithms to provide relevant video feeds to TikTok users. </p>
<p>By the start of 2017, Douyin had become China’s most popular mobile video app. In November of the same year, ByteDance spent US$1 billion to acquire a competing video sharing <a href="https://www.reuters.com/article/us-bytedance-musically/chinas-bytedance-scrubs-musically-brand-in-favor-of-tiktok-idUSKBN1KN0BW">site called Musical.ly</a>. While Musical.ly was also founded in China, most of its users were based in the US. The combined global reach of TikTok and Musical.ly made for a powerful combination.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/252504/original/file-20190104-32148-knhmv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/252504/original/file-20190104-32148-knhmv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/252504/original/file-20190104-32148-knhmv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/252504/original/file-20190104-32148-knhmv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/252504/original/file-20190104-32148-knhmv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/252504/original/file-20190104-32148-knhmv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/252504/original/file-20190104-32148-knhmv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">TikTok came for Music.ly. Now it’s coming for Facebook.</span>
<span class="attribution"><span class="source">MichaelJayBerlin / Shutterstock.com</span></span>
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<p>While many social media applications focus on global consistency and reach, TikTok focused on targeting specific local audiences. For example, in Japan, TikTok collaborated with a large artist management company to drive traffic from YouTube and Instagram using watermarked TikTok videos created by local celebrities. It also ran a series of dancing and music campaigns focused on overcoming shyness, an issue for many young people in Japan. </p>
<p>Challenges are one of the key elements of TikTok. These are video skits that get acted out on masse, with people creating various responses to a popular meme. A recent one involved gummy bears singing an Adele song, which got <a href="https://m.tiktok.com/v/6640342878226763014.html">1.7m likes on TikTok</a>, went <a href="https://twitter.com/Vknbberiv/status/1079418894538940418">viral on Twitter</a> and <a href="https://mashable.com/article/tik-tok-gummy-bear-haribo-someone-like-you-challenge/?europe=true#fCon9XFs15qn">spawned numerous spinoffs</a>. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1079418894538940418"}"></div></p>
<h2>Competition looms</h2>
<p>By the end of 2018, TikTok had more than half a billion active users (<a href="https://venturebeat.com/2018/10/25/twitter-loses-9-million-monthly-active-users-in-q3-2018-its-steepest-decline-ever/">more than Twitter</a>) – around 40% of them outside China. It is no surprise that the Chinese giants are closely studying TikTok’s successful approach of simple design, active promotion, attention to different locales, and focused acquisition, with an eye to understanding and emulating the magic formula for succeeding in global markets. </p>
<p>Tencent is already making a bet on the short-video streaming industry by <a href="https://uk.reuters.com/article/us-kuaishou-fundraising/chinas-kuaishou-in-1-billion-tencent-led-funding-round-eyes-ipo-sources-idUKKBN1FE11D">investing in Kuaishou</a>, TikTok’s main local competitor, and reportedly giving out subsidies <a href="https://kr-asia.com/tencent-bets-on-its-revived-weishi-app-to-take-on-toutiaos-tik-tok-in-short-video-streaming">worth nearly US$500m</a> to promote its own platform Weishi. The giants of the West are also taking note, with Facebook quietly launching a TikTok competitor app <a href="https://techcrunch.com/2018/11/09/lasso-facebook-app-store/">called Lasso</a> in November 2018. </p>
<p>Meanwhile, Bytedance recently <a href="https://www.bloomberg.com/news/articles/2018-10-26/bytedance-is-said-to-secure-funding-at-record-75-billion-value">completed</a> a new round of funding led by major tech investor SoftBank. This valued the company behind TikTok at US$75 billion, making it the world’s most valuable startup, higher even than Uber. </p>
<p>Bytedance cannot rest on its laurels, however, if it wants TikTok to build on its position as the first globally successful “made in China” app. TikTok will need to massively expand from its base, while staving off attacks from well funded and ambitious Chinese and global competitors. Building a successful app is one thing. But, <a href="https://www.recode.net/2018/9/16/17861692/snap-stock-decline-explained-user-growth-evan-spiegel">as Snapchat’s fall from grace shows</a>, sustaining that success is an entirely more challenging endeavour.</p><img src="https://counter.theconversation.com/content/109302/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>TikTok was one of 2018’s most downloaded mobile apps for Apple and Android devices in the US and Europe.Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, International Institute for Management Development (IMD)Jialu Shan, Research Associate at Global Center for Digital Business Transformation, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1088662019-01-03T10:11:47Z2019-01-03T10:11:47ZHow Macau became the world’s casino capital<figure><img src="https://images.theconversation.com/files/251285/original/file-20181218-27770-7c5266.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/skyline-macau-by-sea-592345484?src=OISDON-jQR9GzQ1YgnFBsQ-1-1">shutterstock</a></span></figcaption></figure><p>Macau is China’s answer to Las Vegas. But the former Portuguese colony has long surpassed the City of Lights as the world’s casino capital, with revenue from gambling receipts exceeding the entire state of Nevada <a href="https://www.tandfonline.com/doi/full/10.1080/09512748.2014.995127">back in 2010</a>. As well as drawing in the punters, it has the glittering architecture to match.</p>
<p>The story of Macau is one of <a href="https://www.sciencedirect.com/science/article/pii/S0264275117308995">globalisation and the rise of China</a>. It is a globalisation story because of the role played by foreign multinational casino companies. And it is a story of the rise of China because it has been the economic prosperity of its citizens that has allowed them in great numbers to travel, see the world, and gamble. </p>
<p>Macau returned to Chinese rule in 1999 as a special administrative region, which means it has different laws to the mainland. It is the only part of Greater China (which includes China, Hong Kong and Macau) where gambling is legal, making it the country’s sole gambling destination. </p>
<p>In the years before the 1999 handover, the environment in Macau was fraught, with organised crime a violent presence competing for access to the sub-contracted VIP gaming rooms. These VIP rooms, which host high stake games in a private setting, are another dynamic behind Macau’s success. They made the Macau gambling experience different from that of other casino destinations. </p>
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<img alt="" src="https://images.theconversation.com/files/252219/original/file-20190102-32133-16ivpaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/252219/original/file-20190102-32133-16ivpaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/252219/original/file-20190102-32133-16ivpaq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/252219/original/file-20190102-32133-16ivpaq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/252219/original/file-20190102-32133-16ivpaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/252219/original/file-20190102-32133-16ivpaq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/252219/original/file-20190102-32133-16ivpaq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Macau makes its big money from VIP rooms.</span>
<span class="attribution"><span class="source">Benny Marty / Shutterstock.com</span></span>
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</figure>
<p>Macau’s focus on high-spending customers, with private rooms and special privileges – rather than mass market gamblers – is the source of much of the casinos’ revenue. Casinos were originally built around VIP rooms. These were sub-contracted to gambling promoters who shared in the profits from bringing in wealthy gamblers. These high rollers made up <a href="https://www.sciencedirect.com/science/article/pii/S0264275117308995#f0020">66% of total casino revenues in 2013</a>.</p>
<h2>International investment</h2>
<p>Casino operations generate substantial tax revenue for the government: in 2001 it was 40% of <a href="https://www.dsec.gov.mo/Statistic.aspx?NodeGuid=8ef1e6ac-47a3-4a56-b9e1-9925ca493549">all tax revenue collected</a>. Ten years later, government income from casino gaming taxes amounted to 81% of all tax revenue collected. This massive change is the result of the decision to open up the casino industry and invite foreign firms to compete for a casino license. </p>
<p>Until 2001, only one company was licensed to operate casinos and for four decades this was monopolised by a company called Sociedade de Turismo e Diversões de Macau, SA (STDM). From 2002, casino licences were awarded to several foreign multinational firms and joint ventures. This included big firms from Australia, Hong Kong and the US, with recognisable names from Vegas, such as Las Vegas Sands, MGM, Galaxy and Wynn Resorts. </p>
<p>They invested heavily in big new casino resort complexes, with luxury hotels and high-end shopping malls. Given Macau’s tiny size – it originally consisted of a mainland peninsula and two small islands measuring 11.6 square kilometres in 1912 – land reclamation projects were necessary to host the burgeoning industry. By 2010, the <a href="http://yearbook.gcs.gov.mo/uploads/yearbook_pdf/2018/myb2018ePA01CH21.pdf">territory measured 29.7 square kilometres</a>, including six square kilometres of new land connecting the small islands of Coloane to Taipa, which plays host to the big casino complexes.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/252218/original/file-20190102-32130-1ofnzgq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/252218/original/file-20190102-32130-1ofnzgq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/252218/original/file-20190102-32130-1ofnzgq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/252218/original/file-20190102-32130-1ofnzgq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/252218/original/file-20190102-32130-1ofnzgq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/252218/original/file-20190102-32130-1ofnzgq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/252218/original/file-20190102-32130-1ofnzgq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The Venetian Macao, modelled on the Las Vegas original, is the largest casino in the world.</span>
<span class="attribution"><span class="source">jeafish Ping / Shutterstock.com</span></span>
</figcaption>
</figure>
<p>These new casinos have provided some employment opportunities for local citizens, but the greater impact for the economy has been the tourist visitor numbers and the tax revenue generated. After a decade of ever-increasing growth in gaming revenue with the opening of new casinos, tax revenue from the sector peaked in 2014 and then declined after China’s president, Xi Jinping instituted a <a href="https://www.wsj.com/articles/china-corruption-crackdown-deals-macau-a-rough-hand-1425364603">widespread anti-corruption campaign</a>. </p>
<p>The VIP gaming rooms in Macau became seen by the government in Beijing as a massive leakage of capital from the Chinese economy. A large part of the big money being gambled by these VIPs was seen as the proceeds of corruption <a href="https://www.wsj.com/articles/macau-gambling-revenue-drops-again-1406871798">and bribery on the mainland</a>.</p>
<p>In 2014, gaming tax revenue provided 84% of the Macau government’s total revenue; by 2017 it had declined to 79%. But these percentages conceal the decline in the actual amount available to the government, from US$20.1 billion in 2014 to <a href="https://www.dsec.gov.mo/Statistic.aspx?NodeGuid=8ef1e6ac-47a3-4a56-b9e1-9925ca493549">US$15.7 billion in 2017</a>. This is because a number of Chinese elites eschewed Macau’s casinos <a href="http://www.scmp.com/news/china/policies-politics/article/1813110/junket-operators-look-beyond-macau-sidestep-beijings">to avoid scrutiny</a> during Xi’s corruption crackdown.</p>
<p>Casino revenue now appears to have stabilised, helped by a move in Macau away from relying on the VIP sector and towards mass market entertainment. The government has also encouraged diversification beyond the casino gaming room and, like Las Vegas, it is looking to attract exhibitions and events to be held there. </p>
<p>The <a href="https://www.theguardian.com/world/2018/oct/22/longest-sea-bridge-to-open-china-hong-kong-zhuhai-macau-permi">new bridge</a> connecting Macau with Hong Kong should support increasing tourist visits by easing travel to the territory, further supporting diversification. But Macau must increasingly contend with neighbouring rivals. The anti-corruption campaign encouraged Chinese gamblers to visit other Asian casino destinations, including new resorts in Singapore and Manila in the Philippines. </p>
<p>Modern Macau is built on China’s rise and the increased wealth of its citizens that this has brought. Macau’s continued success is contingent on its ability to attract the mass market gambler, along with other tourists, as a vacation destination. As China’s middle class <a href="https://www.businessinsider.com/chinas-middle-class-is-exploding-2016-8?r=US&IR=T">continues to grow</a>, it should guarantee a steady supply for years to come.</p><img src="https://counter.theconversation.com/content/108866/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Vlcek does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The story of Macau is one of globalisation and the rise of China.William Vlcek, Senior Lecturer in Global Political Economy, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1031252018-11-09T11:42:39Z2018-11-09T11:42:39ZSingles Day shows China’s global retail power<figure><img src="https://images.theconversation.com/files/244653/original/file-20181108-74760-liy9cl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A mascot for Alibaba's online shopping site Tmall urges customers to buy on Singles Day.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-Singles-Day/05c8096ec07044a88e48abf0d962d424/12/0">AP Photo/Ng Han Guan</a></span></figcaption></figure><p>Nov. 11, or 11/11, has been celebrated as Singles Day – a sort of <a href="https://en.wikipedia.org/wiki/Singles%27_Day">anti-Valentine’s Day</a> for single people – since 1993. Chosen because its date has four ones in a row, the holiday originated in China and has become the largest shopping day of the year, in both online and offline retail sales around the world. It’s a signal of shifting power in the global retail sales market, moving away from the U.S. and toward Asia – specifically China.</p>
<p>Alibaba, the giant Chinese e-retailer that promoted the day as an opportunity – or excuse – for single people to treat themselves with new purchases, has seen its revenues on Nov. 11 grow from <a href="https://www.theatlas.com/charts/EJ8yZP5Ml">US$100 million in 2009</a> to 250 times that in 2017, <a href="https://www.statista.com/statistics/364543/alibaba-singles-day-1111-gmv/">$25 billion</a>. And that was only <a href="https://www.digitalcommerce360.com/2017/11/13/chinas-singles-day-online-shopping-extravaganza-nets-38-23-billion-sales/">two-thirds of total online sales</a> that day.</p>
<p>Singles Day dwarfs the three other largest online retail mega-events. In 2017, Thanksgiving weekend online sales – <a href="https://www.statista.com/statistics/266010/online-revenue-on-thanksgiving-and-black-friday/">including Black Friday</a> and <a href="https://www.statista.com/statistics/194643/us-e-commerce-spending-on-cyber-monday-since-2005/">Cyber Monday</a> – totaled $7.3 billion. The third, Amazon’s Prime Day, in 2017 took in <a href="https://www.statista.com/statistics/728120/annual-amazon-prime-day-sales/">$100 million an hour</a> – but Alibaba raked in <a href="https://www.statista.com/statistics/364543/alibaba-singles-day-1111-gmv/">10 times that amount</a> on Singles Day that year.</p>
<p><iframe id="YRBtS" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/YRBtS/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Getting in on the action</h2>
<p>By 2022, Chinese middle-class shoppers as a group are projected to <a href="https://www.businessinsider.com/chinas-middle-class-is-exploding-2016-8">both outnumber and outspend U.S. customers</a>. Retailers around the world are seeking to take advantage of this growing Chinese economic power, offering their own Singles Day deals and even seeking to expand the day into a longer festival: Alibaba is keeping its discounts going for 48 hours, and its main Chinese competitor, JD.com, began an 11-day festival from Nov. 1 to Nov. 11 with a set of limited-time discounts that <a href="https://technode.com/2018/11/01/jd-com-logs-rmb-6-billion-in-sales-within-the-first-hour-of-singles-day-campaign/">grossed $865 million in its first hour</a>.</p>
<p>Global brands like <a href="https://www.adweek.com/digital/singles-day-is-the-worlds-biggest-shopping-day-but-dont-expect-to-find-it-here/">Adidas, Mattel, Mondelez, Nike and Unilever</a> participated in 2017 by offering deals on a variety of their products. <a href="https://www.fool.com/investing/2017/10/22/jdcom-tencent-and-wal-mart-join-forces-against-ali.aspx">JD.com teamed up with Tencent</a> – another Chinese e-commerce behemoth – and Walmart to offer one another’s customers the same special deals on Singles Day 2017. In 2018, Alibaba subsidiary Lazada is offering Singles Day sales <a href="https://econsultancy.com/singles-day-2018-alibaba/">in six Southeast Asian countries</a>. </p>
<h2>Online or in store?</h2>
<p>For 2018, Alibaba is promising <a href="https://www.businessinsider.com/alibaba-plans-for-singles-day-this-year-2018-11">special discounts on 1.5 million products</a> in 3,700 categories, from 180,000 brands from China and 74 other countries. The company plans to fulfill much of the enormous order volume from its <a href="https://www.cnbc.com/2018/10/30/alibaba-cainiao-chinas-biggest-robot-warehouse-for-singles-day.html">robot-automated warehouse</a> where 700 robots will automatically pick up items and assemble packages for shipping to customers.</p>
<p>Many companies are working to develop their electronic customer base, <a href="https://theconversation.com/more-businesses-are-trying-mobile-apps-to-lure-and-keep-consumers-88684">particularly with mobile apps</a>. But there is still big money in the real world.</p>
<p>Though <a href="https://theconversation.com/how-sears-helped-make-women-immigrants-and-people-of-color-feel-more-like-americans-105278">landmark retailers like Sears</a> and J.C. Penney are struggling in the U.S., the vast majority of global shopping is still <a href="https://theconversation.com/in-store-shopping-still-matters-this-holiday-season-87494">done in-person</a>, rather than online. Newer <a href="https://multichannelmerchant.com/blog/omnichannel-investments-pay-off-brick-mortar-retailers/">mega-retailers like Walmart, Target and Best Buy</a> are thriving in the U.S. and elsewhere. Even pure e-commerce retailers such as Amazon are moving offline, opening <a href="https://www.businessinsider.com/amazon-go-stores-close-on-weekends-2018-10">cashierless Amazon Go stores</a> and physical bookstores, <a href="https://theconversation.com/amazon-dives-into-groceries-with-whole-foods-five-questions-answered-79638">buying Whole Foods</a>, and partnering with Kohl’s to handle product returns. </p>
<p>In China, Alibaba has moved into physical stores, too, <a href="https://www.forbes.com/sites/greatspeculations/2017/11/21/alibaba-takes-next-step-in-new-retail-with-2-9-billion-investment/">acquiring the InTime department store and mall chain</a> and <a href="https://www.businessinsider.com/chinas-hema-market-has-two-advantages-over-amazon-go-2018-2">opening 60 Hema supermarkets</a> that don’t accept cash and where customers’ food purchases can be prepared before they check out. The company has also <a href="https://technode.com/2018/02/14/alibaba-new-retail/">set up 100,000 convenience stores</a> as places where customers can try on products in augmented reality and pay with facial recognition systems.</p>
<h2>The future of retail</h2>
<p>Shoppers around the world want to be able to buy both online and in physical space, from any device and by any payment method – all while getting a high level of customization and service experience. This goes beyond the simple mechanics of telling a smart speaker like Amazon Echo, Google Home or Apple’s HomePod to order more laundry detergent. </p>
<p>Artificial intelligence systems are analyzing customers’ behavior, which can make routine shopping for items like facial tissues and soap faster and easier, by remembering what brands a customer likes, and how often to order refills. AI can also suggest products customers might want to buy, based on their previous purchases – as <a href="https://www.wired.com/story/amazon-artificial-intelligence-flywheel/">Amazon already does</a>. That can make shopping for luxury products, splurges and gifts more fun and engaging. </p>
<p>The global retail market is adjusting to China’s rising economic power, and Chinese customers’ desire for AI-enhanced mobile shopping experiences. Singles Day’s spread across the world suggests a new chapter of computer-enhanced shopping experiences is beginning.</p><img src="https://counter.theconversation.com/content/103125/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Venkatesh Shankar does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese customers spend billions on Nov. 11. Why, and what does it mean for the global retail marketplace?Venkatesh Shankar, Professor of Marketing; Director of Research, Center for Retailing Studies, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1030322018-10-08T00:31:50Z2018-10-08T00:31:50ZWorld politics explainer: Deng Xiaoping’s rise to power<figure><img src="https://images.theconversation.com/files/238598/original/file-20181001-18991-ycv1qo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Chinese stamps commemorating Deng Xiaoping, a leader widely regarded to have modernised the country and made it a formidable economic power, 1998.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/100814056?size=huge_jpg">Shutterstock</a></span></figcaption></figure><p><em>This article is part of our <a href="https://theconversation.com/au/topics/world-politics-explainer-59420">series</a> of explainers on key moments in the past 100 years of world political history. In it, our authors examine how and why an event unfolded, its impact at the time, and its relevance to politics today.</em></p>
<hr>
<p>By orchestrating China’s transition to a market economy, Deng Xiaoping has left a lasting legacy on China and the world. </p>
<p>After becoming the leader of the Communist Party of China in 1978, following Mao Zedong’s death two years earlier, Deng launched a program of reform that ultimately saw China become the <a href="https://www.imf.org/external/datamapper/PPPSH@WEO/OEMDC/ADVEC/WEOWORLD">world’s largest economy</a> in terms of its purchasing power in 2014. </p>
<p>Last year it <a href="https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april-2018#Statistical%20Appendix">accounted</a> for 18.2% of total global purchasing power, compared with 15.3% for the United States.</p>
<h2>What happened?</h2>
<p>A major turning point was the 3rd Plenum of the 11th Central Committee of the Communist Party of China, which took place in December 1978. For the three decades prior, production in China was structured around a central planning model: collectivised agriculture in rural areas and state-owned industrial firms (SOEs) in urban regions. The prices of goods and services were also fixed by the government rather than determined by supply and demand.</p>
<p>Deng recognised that the outcomes produced by the planned economy were poor, with more than 60% of the population <a href="https://data.worldbank.org/topic/poverty?locations=CN">living in poverty</a>. That’s why he launched a series of measures such as opening up the economy to foreign trade and investment. </p>
<p>He summarised his distinctly pragmatic rather than ideological approach to development with the phrase, “It doesn’t matter whether the cat is black or white, so long as it catches mice”.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"502837514231488513"}"></div></p>
<p>Under Deng, the market wasn’t given free rein immediately. There was no reform of the “<a href="https://link.springer.com/chapter/10.1007/978-1-349-26928-0_8">big bang</a>” variety seen in former centrally-planned economies of Central and Eastern Europe. </p>
<p>Rather, in the words of Barry Naughton, China’s economy was simply allowed to “<a href="https://www.cambridge.org/core/books/growing-out-of-the-plan/4500F9826731A4765F9B6C2EFCE7AD53">grow out of the plan</a>”.</p>
<p>For example, state-owned firms were not sold off to private entrepreneurs at the outset. Rather, privately-owned companies were permitted to emerge alongside SOEs. This gave Chinese consumers choices and the competition forced SOEs to become more responsive to market demand and efficient in their production practices. </p>
<h2>The impact of the reforms</h2>
<p>The outcomes of Deng’s reforms have been without historical peer.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=286&fit=crop&dpr=1 600w, https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=286&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=286&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=359&fit=crop&dpr=1 754w, https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=359&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/238615/original/file-20181001-19018-64ja8f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=359&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Deng Xiaoping billboard stating</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Deng_Xiaoping_billboard_06.jpg">Wikicommons/Brücke-Osteuropa</a></span>
</figcaption>
</figure>
<p>The latest data put the proportion of China’s population living in poverty at <a href="https://data.worldbank.org/topic/poverty?locations=CN">less than 1%</a>. Of course, despite hundreds of millions being lifted out of poverty, this does not mean that all Chinese are rich: average incomes are still only <a href="https://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD?locations=CN-AU">around one-third</a> of those in Australia.</p>
<p>The reasons Deng’s reforms proved successful can be traced back to two key factors.</p>
<p>The first is policy logic.</p>
<p>John McMillan and Barry Naughton <a href="https://www.jstor.org/stable/23606048?seq=1#page_scan_tab_contents">showed</a> that the newly-emerged private sector played a crucial role in improving the Chinese economy’s overall efficiency.</p>
<p>Another key consideration was that China benefited from its starting point.</p>
<p>Jeffrey Sachs and Wing Thye Woo <a href="https://www.jstor.org/stable/1344459?seq=1#page_scan_tab_contents">pointed out</a> that in 1978, most Chinese people were poor and living in rural areas. Compared with other centrally-planned economies such as the former Soviet Union, this made the task of shifting labour from producing low-productivity agricultural output to higher productivity industrial goods easier.</p>
<p>Just how far along the path to a market economy has China come?</p>
<p>That depends on the measure and the part of China’s economy under focus. </p>
<p>Last month, Meixin Pei, a professor at Claremont McKenna College in the United States, pointed to China’s state sector as evidence its economic growth would slow. He <a href="https://www.project-syndicate.org/commentary/china-cold-war-us-competition-by-minxin-pei-2018-09">wrote</a> that China’s economy was “nowhere near as efficient as that of the US”. And the “main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment”.</p>
<p>Yet, perhaps unwittingly, Pei makes an important observation. SOEs may account for one-fifth of China’s value-added output and employment. But that means four-fifths now comes from Deng’s private sector. </p>
<h2>Contemporary relevance</h2>
<p>Careful work by Nicholas Lardy at the Peterson Institute for International Economics has <a href="https://piie.com/bookstore/markets-over-mao-rise-private-business-china">concluded</a> that by 2011, China’s public sector, including SOEs, only employed 11% of China’s labour force. As a comparison, in 2013, Australia’s public sector <a href="https://stats.oecd.org/Index.aspx?QueryId=66856">accounted</a> for 18.4% of total employment. In other words, at an aggregate level and in terms of employment, the private sector is more prominent in China than in Australia.</p>
<p>An OECD study in 2010 found that 87% of China’s 523 industrial sectors were highly competitive. They <a href="https://read.oecd-ilibrary.org/economics/oecd-economic-surveys-china-2010_eco_surveys-chn-2010-en#page107">observed</a> that this compared favourably with international standards, including with the US. </p>
<p>Commentators like Minxin Pei are correct that China’s SOEs do benefit from government policy support, such as cheap loans from state-owned banks.</p>
<p>But the data nonetheless point to China’s private sector being hyper-competitive in the sense that despite such discriminatory policies, the sector as a whole has continued to thrive.</p>
<p>In a 2016 paper for a Reserve Bank of Australia conference, Nicholas Lardy <a href="https://www.rba.gov.au/publications/confs/2016/pdf/rba-conference-volume-2016-lardy.pdf">highlighted</a> that in terms of output growth, profitability and indebtedness, private Chinese industrial firms outperform SOEs by a wide margin.</p>
<p>The prominent and vibrant role the private sector plays in China today means that its economic growth may be more sustainable than some of its critics imagine. </p>
<p>That said, the pace of economic reform has slowed under current Chinese leader, Xi Jinping, who took over in 2012. </p>
<p>Arguably the slowdown dates back even further. For example, in terms of subjecting Chinese firms to increased competition from overseas firms, China’s trade-weighted average tariff in 2000 stood at 14.7%. After entering the World Trade Organisation (WTO) in 2001, this <a href="https://www.wto.org/english/tratop_e/tariffs_e/tariff_profiles_2006_e/tariff_profiles_2006_e.pdf">fell</a> dramatically to 4.7% by 2005. Since then, no further progress has been made. In fact, in 2016 the figure was <a href="http://stat.wto.org/TariffProfiles/CN_e.htm">higher</a> at 5.2%. </p>
<p>Similarly, four decades after Deng began to allow foreign investment into the manufacturing sector, other parts of China’s economy, particularly the so-called “commanding heights” of the economy such as energy, telecommunication and finance, remain curtailed or off limits entirely. Overall, China is <a href="https://data.oecd.org/fdi/fdi-restrictiveness.htm">less open</a> to foreign investment than high-income countries and many emerging markets as well. </p>
<p>This lack of reciprocity is at least partly responsible for much of the international community’s criticisms of China’s economy today. Jason Young, the Director of the New Zealand Contemporary China Research Centre <a href="https://www.asiamediacentre.org.nz/opinion/us-china-trade-war-could-undermine-international-system-jason-young/">wrote</a> last week that the current US-China trade war is really a “dispute over what models of political economy are deemed fair and legitimate economic policy-making in today’s highly-integrated global economy”. </p>
<p>Over the past decade, around one-third of the <a href="https://www.austrade.gov.au/News/Economic-analysis/chinas-transition-and-the-outlook-for-regional-trade">world’s economic growth</a> has emanated from China. Countries like Australia have been leading beneficiaries, with China buying <a href="https://dfat.gov.au/trade/resources/trade-statistics/Pages/trade-time-series-data.aspx">$116 billion</a> last year. </p>
<p>China’s economic growth, and therefore the world’s, will be more assured if Deng’s reform legacy is reclaimed by China’s current crop of leaders. Just announced <a href="https://www.reuters.com/article/us-china-economy-tariffs/china-announces-fresh-import-tariff-cuts-amid-brewing-trade-war-idUSKCN1M61EH">tariffs cuts</a> and <a href="https://www.theaustralian.com.au/business/economics/china-details-timetable-for-fully-opening-up-car-industry-to-foreign-investment/news-story/6ce8706b038d82de491948b77f3a6659">new openings</a> for foreign investment are steps in that direction.</p><img src="https://counter.theconversation.com/content/103032/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Laurenceson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China is one of the world’s largest economies, and Deng Xiaoping was arguably the man who made that happen through his visions of economic reform.James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.