The Chinese economy is in trouble just as Joe Biden copies the recipe by emulating Xi Jinping’s industrial policies. Today’s data shows a sharp slowdown in Chinese growth across all sectors: consumption, investment, industrial production, real estate. Youth unemployment reached a maximum of 20%. The slowdown has prompted Beijing’s central bank to cut interest rates, in contrast to what’s happening in the West, where monetary authorities are raising the cost of money to fight inflation. But those Chinese interest rate cuts — and the creation of $60 billion in new monetary liquidity — may not be enough to quell the uncertainty weighing on the world’s second-biggest economy. The first causes the expansion of restrictions related to the zero-Covid health policy, which Xi Jinping has so far refused to deviate from.
The slowdown in Chinese growth is having an immediate impact on commodity markets: oil prices fell by 5%, returning to mid-February levels, ie before the Russian invasion of Ukraine. China is the world’s largest consumer and importer of fossil fuels and almost every other commodity. In light of the latest data, many analysts are downgrading year-end GDP growth forecasts to around 3%. The Beijing government’s official target remains at 5.5% and Xi Jinping, for prestige reasons, wants China’s GDP trend to overtake US at least in percentage terms (overtaking in absolute magnitude is further postponed). But Xi seems unwilling to launch public spending maneuvers comparable to those used to escape Beijing’s great crisis of 2008. and also the fear of rising inflation, which in turn could trigger social tensions.
Former Australian Prime Minister Kevin Rudd, who now heads the New York think tank Asia Society, is adept at Chinese reality and argues that the root of China’s slowdown is the return of socialism. Notably, as of 2017, Xi has enforced a leftward shift in his economic policies: Communist Party sections have resumed a role in the governance of many companies, and several private groups have been forced to include state-owned companies in their shareholder base. This return to the primacy of the communist party and state is a reversal of Deng Xiaoping’s neoliberal era.
The difficulties of Chinese growth are bound to fuel controversy over Biden’s economic policies in the United States. Indeed, the recent legislative maneuvers that the Washington Congress has unleashed at the instigation of the White House are part of a tendency to copy China in order to beat her at her own soil – which I analyzed in my essay Stopping Beijing a year ago. With this democratic administration, there is also a return of government to the economy in the United States, albeit in a very different context than in China. The maneuver of subsidies and aid for semiconductors and the Green Deal, which provides financing and concessions for renewable energy, are part of a reaction to the loss of America’s technology leadership in some strategic sectors. Biden, supported by a robust current within his party, was convinced that countering China’s encroachment was necessary, in part using his own methods, namely making an industrial policy that favors national champions with the support of the state. Already last year, total tax spending on private industry in the United States reached 1.4 trillion, and Biden’s latest maneuvers will add 350 billion.
Criticism is beginning to be heard from the liberal wing of the Republican Party: If Xi’s leadership in China has failed, then why imitate? Opponents of industrial policy argue that America fell victim to a similar mistake in the 1980s when the Yellow Peril was Japan, and part of the American political elite believed that Japanese multinationals’ competitiveness was a result of Tokyo government planning. In 1989, the Rising Sun fell into a long crisis and the Japanese model went out of fashion.
August 15, 2022 8:37 p.m. – Change August 15, 2022 | 20:37
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