The president of China once promised the people shared prosperity. Now the country is dominated by crises. Many Chinese feel the consequences.
What happened to the several thousand petty savers in China’s central Henan province should shake their worldview from scratch. They were denied access to their accounts for months after being frozen by four rural banks after an alleged speculative scandal. But the reaction of the central government was at least as scandalous: for a long time it refrained from guaranteeing the victims their savings. Instead, she ordered security police officers to take outraged people who rallied at the protests, beaten by local thugs – and shocking eyewitness reports on social media were immediately censored.
The Henan banking scandal may only be a relatively small sum from an economic point of view, but it reveals a primary fear among the population. Ever since the country began to open up economically, society has been united above all by a silent agreement: the Chinese voluntarily give up their right to a political vote, as long as the party leadership in Beijing ensures a constant improvement in the material standard of living. And for decades the plan has worked perfectly well: between 1978, when Deng Xiaoping started his reform policy, and Xi Jinping’s entry into office in 2013, China’s gross domestic product grew more than 64-fold.
Economic growth in China has stopped
But at the latest in the course of the dogmatic “zero Covid” policy, the situation was completely reversed. Economic growth has practically stalled: between April and June, gross domestic product grew by just 0.4%. Every year.
The direct effects of the impending recession are becoming clearer. The overheated real estate sector, one of the main pillars of the domestic economy, is already threatening the downward spiral that the US news agency Bloomberg recently described as the Chinese Lehman Brothers moment: tens of thousands of Chinese are now refusing to pay their mortgage payments as their housing projects stand unfinished in the landscape . And as reported by the business magazine Caixin, hundreds of suppliers to the largest building developers can no longer pay the bills.
The crisis is domestic
Economic poverty is largely caused by the home. And it’s not just a zero Covid policy that deprives companies of any planning security due to impending blockages. Beijing’s excessive tide of regulation against the tech industry, which has produced the country’s largest multinationals, also led to unprecedented mass layoffs last year. From Alibaba to Tencent to Iqiya’s streaming service, all the giants in the market have laid off a large chunk of their workforce.
The gold rush of the 2000s
Without a doubt, Xi Jinping faces the biggest challenge of his political career as he approaches the end of his second term in office. After all, the 69-year-old started with a vision to make Chinese society fairer and fairer. Shared Prosperity is an advocated paradigm shift that Xi outlines in virtually every speech. The concept is also a reaction to the gold rush of the 2000s, when China’s gross domestic product grew in double-digit percentages, but corruption and radical inequality were rampant.
But so far Xi Jinping’s vision of “shared prosperity” is nothing more than a vague formulation that escapes specific definitions in the rhetorical fog of the Communist Party. The measures announced by the Chinese head of state so far appear more populist than permanent: companies have been doomed to return more excess profits to the public in the form of philanthropic donations.
No part of the population in China benefits at present
Developer Desmond Shum, who now lives in exile in London, looks from afar at events in his home country with great skepticism: “What makes Xi Jinping especially terrifying for entrepreneurs is that he is changing all areas of the world. society: how wealth is generated, technology is regulated, and how the banking system works, ”says Shum, who belonged to Beijing’s elite in 2000 and was linked to, inter alia, with the family of then Prime Minister Wen Jiabao.
How far PRL is from “common prosperity” is shown recently by the latest data from the national statistical office. According to this, more than 960 million of the 1.4 billion Chinese still have to settle for a monthly income of less than 2,000 renminbi, which is less than 290 euros. The low share of people’s income in gross domestic product also reveals the Achilles heel of the Chinese economy: the weakening of domestic consumption.
strengthen the domestic market
As a result, there is a high risk that China will remain trapped in the so-called “middle income trap” from which only a few ex-developing countries – most notably South Korea, Taiwan and Singapore – have managed to escape. The rapid development of the People’s Republic of China relies not only on cheap labor combined with a state that has massively invested its savings in infrastructure, technology and production capacity. However, this economic model soon reached its limits: to develop sustainably, a country would need to increase internal consumption by adjusting income distribution. However, the necessary reforms would trigger a painful process of transformation for which the government, concerned about social stability, is probably rightly concerned.