I’m not sure that Josh Rudolph appreciates the full implications of a major slowdown of China’s economy, discussed here in his piece at the New Atlanticist/i>. He lists the challenges as
1. Slow deleveraging: While credit growth has moderated to come in line with economic growth, debt-to-gross domestic product (GDP) ratios remain high and steady.
2. Persistent financial risk: Financial regulatory overhaul continues, but new shadowy corners pop up as soon as old ones get regulated, while property prices remain elevated.
3. Monetary/external imbalance: The strategy of using monetary liquidity to support the financial system amid regulatory tightening is running headlong into Federal Reserve tightening, weakening the renminbi and retesting capital controls.
4. Geopolitics: Even before the Trump presidency, China and the United States were poised to become competitors as China climbs the value chain and offers an alternative model. For a country as large as China, the middle-income trap is harder because it also leads to a Thucydides Trap (the pattern of established powers fearing rising powers, historically leading to conflict three-quarters of the time and likely to strain China’s integration with Western economies).
5. Social contract: Convincing people to accept lower growth and higher default risk will be difficult.
6. Attracting foreign investors: Convincing international investors to use the renminbi and invest in China requires a credible commitment to avoid capital controls.
7. Sectoral restructuring: It will take decades to rebalance the economy toward domestic consumption, services, and advanced manufacturing, reform state-owned enterprises, and deepen capital markets.
I want to focus on just one of them—what he rather blandly refers to as “social contract”. Over the period of the last 25 years, earned or unearned China’s leadership has gotten something of a reputation for competence, particularly among the members of the Western process, cf. Tom Friedman. That has not always been the case. China had several runs of inflation in the late 1980s and early 1990s, indeed until the yuan was pegged to the dollar.
But a very large proportion of China’s working age population has never experienced anything else from the Chinese leadership than carefully managed growth. IMO if that growth does not continue there is a risk of a loss of confidence in the leadership, something that could snowball.
What could happen with a critical loss of confidence? Just about anything.
I, you, were raised believing in the superiority of a Democratic Republic form of Government. In personal property rights, in freedom of the press, of speech, on and on. We should pause to reflect that most of the worlds young believe in what has worked for them in their time on earth. Right or wrong, most worldwide have come to believe in strongman, authoritarian rule. I believe this rises naturally because we are born small and dependant. Independence requires a leap of faith, absent an education regarding the historical ends of these rulers. Not pretty.
Apparently, you all have not gotten the memo. Communist China is the most capitalist country in the world.
Right up until Xi barks an order. That’s why the first thing Chinese do when they get rich is move away.
The fear of a lack of confidence in the middle class is why China has instituted a social media credit system. Criticize the system or the leaders, or anybody in power? Bad boy! No good jobs for housing for you! And we actually have a presidential candidate (Andrew Wang, an ex-tech tycoon) who thinks that is a good idea. It’s almost as viable as POTUS-wannabe Swalwell’s comment that people who resist giving up their guns should be nuked.
Is this Swalwell, then, an active pacifist?