Is it possible for the Chinese economy to be both unstoppable and unstable? Consider John Lee’s assessment in the Wall Street Journal:
The world has been watching as the Chinese real-estate giant Evergrande flails, and some have been asking whether Beijing will soon have a moment akin to 2008’s collapse of Lehman Brothers in America. Xi Jinping may manage to prevent the burst of the real estate bubble, but China’s economy isn’t heading for more-sustainable growth. Evergrande’s woes are a reminder that China’s political economy under Mr. Xi has become even more unstable, even as Beijing grows more impatient to displace America as the dominant power. Time is not on China’s side.
concluding
Any permanent slowing of credit and restrictive lending policies will mean that even more state-owned enterprises and property developers will struggle to meet their debt obligations, putting more firms in the Evergrande predicament. At the same time, credit-issuing institutions in the formal and shadow banking industries would suffer more defaults by borrowers, which will reduce their capacity to issue new loans. That would damage China’s only reliable way of generating the growth demanded by politics.
This means that the political economy will remain largely unchanged even if Evergrande is allowed to fail. Evergrande’s model of “three highs and one lowâ€â€”high debt, high leverage, high turnover and low cost—will remain the Chinese modus operandi.
I agree with Mr. Lee that President Xi and, indeed, the Chinese Communist Party will do whatever is necessary to retain economic power. Over the last 40 years China’s rapid economic growth has been a means to an end and the is ensuring that the party retains power. Should growth require relinquishing power, growth is expendable.
Meanwhile, we’re left with a question. Can the Chinese economy simultaneously be an immovable object and an irresistible force? We may be about to find out.
The recent CPC meeting set a goal of raising the remaining 600 million poor Chinese to the lifestyle level of the other 800 million. Lot’s of talk about socialism and equality. If Xi et al. don’t screw it all up, it will probably take the better part of a generation to achieve that goal. And China will need peace and sustained economic growth throughout that period. That means no Chinese-initiated adventurism before at least 2040.
I have no doubt the Chinese leadership is serious about better lives for the poor 600 million. But stuff happens. The US and several allies are conducting a huge naval exercise east of Taiwan. Four aircraft carriers from three countries are involved, plus lots of support ships: USS Jefferson and Vinson, HMS QE II, and a Japanese amphibious assault carrier. Both the British and Japanese carriers have embarked a US Marine F-35B squadron. The combined Task Force (59?) likely carries over 120 war planes. In response, China has been flying dozens of aircraft through the Taiwanese Air Defense Identification Zone, but not through any Taiwanese airspace. We are as close to a shooting war with a major country as at any time since the Cuban Missile Crisis.
Any piece of stupidity might set it all off. And there many unstable actors in the region, including Taiwan, North Korea and Philippines. Lots of belligerent talk from all sides, except Russia, which is quiet.
One has to wonder if internal strife in China in dealing with these issues isn’t what the distraction of becoming more belligerent with Taiwan is all about.