Crises in China: four denials and one obstinacy


This column was previously published in L’Express on 21st April 2022

The new environment in China is the result of several concurrent crises… that Beijing refuses to recognize.

The election of President Xi Jinping for his third term of office next autumn could raise some hopes of a rapid awareness that the economy is disturbingly unstable.

The Chinese economy is a splendid example of how fast the present-day world can change. After coming out on top after the 2020 Covid crisis, Beijing now, in 2022, seems to be going through a period of instability that has not been seen since Xi Jinping came to power. At the root of this sudden reversal of fortune are four concomitant denials on the part of the government, which have led to four crises: in healthcare, geopolitics, real estate and economic affairs.

First of all, Beijing denied that the Chinese vaccines against Covid-19 were ineffective. Even today, the refusal to certify BioNTech technology — even though it was under license from the Fosun group in China — has locked the government into its sterile policy of “zero Covid”. Repeated lockdowns are proving to be particularly unworkable because they interfere with almost half of China’s GNP, and have only produced the identification of a few cases, more than 90% of which are asymptomatic. This has allowed the USA to regain its double status as the driving force behind world growth and the world leader in healthcare.

Repeated lockdowns have interfered with almost half of the national GDP

Secondly, when the Ukrainian crisis happened, Beijing denied the supposedly sacrosanct principle of respecting borders. 141 member countries of the United Nations stated their deep attachment to this fundamental right, but China abstained. Those 141 countries will doubtless be asking some questions in the future before they endorse Chinese attempts to establish a re-globalization of the world, aiming above all to de-Westernize the planet.

Sooner or later, Beijing is going to have to be prepared to confront the incompatibility between its “unlimited friendship” for Vladimir Putin’s war crimes and its 700 billion trade surplus, mainly earned in the West. This is enough to threaten what, for over a year, has been the main source of growth for the Chinese economy: its exports to Europe and the USA, which is still tempted by new sanctions.

State attacks on the private sector

The third denial has been that of the real estate crisis which, because of the arrogance of its regulators, has been allowed to extend beyond the initially isolated case of the Evergrande group, to almost 35 real estate developers who have been suspended from the Hong Kong stock exchange after their auditors resigned. What can be done now after the failure of an attempt at camouflage by merging with public organisations? Beijing could choose the solution of “pretend and extend” and, by creating REITs, spread expected losses of about 10% of GDP over the next decade. This would seriously truncate the future growth of the Chinese economy.

The fourth and final denial has been that of the benefits of the private sector. Although the sector is responsible for all job creations, for almost nine months it has been the constant target of random regulatory attacks from the state, in fields that go far beyond education, video games, healthcare and finance.

Furthermore, the recent announcement by the Alibaba group of a formidable plan to buy back shares to the tune of $25 billion has made investors even more concerned. They have seen this move more as a desperate means to escape from any future possibility of being held to ransom by the government and have realized that investment in artificial intelligence — the key sector for China to grow in industrial added value — will not live up to its promises.

The history of China teaches us that phases of denial always come to an end

Hoping for the awareness of economic instability

However, the history of China teaches us that these phases of stubborn denial always come to an end, as was promised in mid-March by the Vice Premier Minister in charge of the economy — Liu He, a true realist, who, among the current Chinese leaders, is probably the most respected in the West. The sudden collapse of Chinese stock exchanges led him to announce his support for the economy publicly — and as a matter of extreme urgency. But his words have not been translated into any concrete measures up to now.

The election of President Xi Jinping for his third term of office next autumn could raise some hopes of a rapid awareness that the economy is disturbingly unstable. The answer to this is the relative relaxation of public health constraints, the temporary calming of diplomatic tensions with the USA, organized portaging of the real estate industry, and for the financing of the private sector to recover. Once distanced from the denials and the obstinacy, Liu He could then, for a short while, put on “the new clothes of comrade Deng Xiaoping” fifty years on.