Are China’s iron-fisted approaches causing its economic slowdown?
15:39 JST, October 23, 2021
The slowdown of the Chinese economy is becoming clearer. The upheaval will have a major impact on Japan and the rest of the world. China needs to implement prudent policy management that takes the economy into consideration.
China’s real gross domestic product for the July-September period of this year increased by 4.9% from the same period of the previous year, much lower than the 7.9% increase in the April-June period. On an annualized basis compared to the previous quarter, the increase was only about 0.8%.
One of the factors cited was the stagnation of production due to power shortages.
In response to the global trend of decarbonization, the Chinese government is said to have pressed local governments to meet their targets for reducing energy consumption. In response to this, the local governments quickly cut back on power supply, causing one factory after another to suspend production.
This was exacerbated by the fact that coal-fired power plants, which provide about 60% of the country’s electricity, had to cut back on power generation due to worsening profitability caused by soaring coal prices.
A stable supply of electricity is the foundation of the economy. If production stagnates in China, which is dubbed “the world’s factory,” it will affect the rest of the world. It is important to stop the disruption as soon as possible.
The Chinese government’s tightened control on the real estate industry is also having a negative impact on the economy. China Evergrande Group, a major real estate company, has been forced into a financial crisis.
The Chinese economy is overly dependent on real estate, and related industries are said to account for about 30% of GDP. With the expansion of real estate investment, prices have risen dramatically, making it difficult for ordinary people to buy houses. This has become a social problem as it has widened disparities.
In preparation for next year’s party congress of the Chinese Communist Party, the administration of President Xi Jinping has set a goal of “common prosperity” to enrich the entire nation. As part of this effort, the administration is said to be trying to calm the soaring real estate prices by tightening regulations on real estate loans, among other measures.
Correcting inequality is necessary for the healthy development of the economy, but if measures are implemented hastily, it could cause the economy to stall due to a sharp drop in real estate prices and a cooling of consumer confidence.
Since last year, the Xi administration has been tightening restrictions on domestic tech giants that have been growing rapidly. In July this year, it began to regulate cram schools for elementary and junior high school students, claiming that the economic disparity is causing an educational disparity. As a result, a number of cram schools are reportedly closing down.
Sudden changes in rules and iron-fisted measures are conspicuous, and the Chinese government must be aware that such approaches may be spreading confusion and hindering economic growth.
It is widely believed that the Chinese economy will continue to slow down in the October-December period. The Xi administration is facing the daunting challenge of balancing the realization of the goal of “common prosperity” with stable economic growth.
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