‘There is great disorder under heaven, the situation is excellent.’
Jorge Costa Oliveira
For decades, China has experienced a serious imbalance in its real estate sector. “Houses are for living in, not for speculation,” said Chinese President Xi Jinping in 2017. However, stagnant national stock markets and bank deposits yielding trifle interest, made savings flow into real estate investments. Only this leadership restructured the real estate sector in 2020.
For decades, banks provided credit generously to real estate development companies and large SOE, often without proper credit risk analysis. Additionally, government directives were often given to facilitate credit as a macroeconomic policy tool. Only in 2016-2017 were harsh instructions issued that there would be consequences for bank credit poor management.
For decades, provincial governments and their agencies financed themselves through land sales and concessions to major real estate developers, becoming entirely dependent on these revenues.
For decades, significant investments were made in critical infrastructure of all kinds that transformed China and laid the foundation for unparalleled economic development.
For decades, corruption was rampant to the point that the fight against corruption became the Chinese Communist Party’s (CCP) primary battle, especially after Xi, prompted by an article in Bloomberg (June 29, 2012) about his family’s wealth, initiated a historic clean-up that continues to this day.
For decades, massive migration from rural areas to cities created problems of family reunification and social issues for hundreds of millions of citizens.
For decades, there was an assumption of an endless “industrial reserve army” made up of internal migrants. Even after demographers warned of the inevitable population reduction, with low fertility rates due to the one-child policy and social changes that led couples and women to prefer having fewer children, this being exacerbated by the rapid aging of the population and demographic shifts. The limit was changed to two children and later to three, but the change in mentality had already taken place.
For decades, growth was primarily driven by the private sector, responsible for 87% of urban employment, 88% of exports, and 65% of fixed asset investment. The private sector, for various reasons (losses due to COVID-19 restrictions, emphasis on “common prosperity,” crackdown on digital and education companies), now has less confidence, resulting in increased savings and reduced investment and consumption. Campaigns against the private sector have ended, but the damage to private companies’ confidence will take time to repair.
For decades, the Chinese government significantly invested in military weaponry and equipment, in line with the national economic growth, and also in response to the perception of the US as a threat (and vice versa). However, the magnitude of military growth and its assertiveness in the South China Sea have alarmed neighboring countries and beyond.
The past decade has seen China openly compete with the US for global supremacy. However, China still heavily relies on foreign investment and technology, resources largely coming from the US and Europe, destinations for more than 50% of Chinese exports.
In the last decade, we have also witnessed a concentration of power within the CCP and the subjugation of everything and everyone to the Party, as well as the consolidation of power in its Secretary-General, with the removal of the two-term limit.
After decades of unprecedented economic growth, a slowdown now seems inevitable. If the slowdown is severe, it could jeopardize the informal social contract between the CCP and the Chinese population – political power monopoly in exchange for continuous prosperity.
Storms and “tempestuous seas,” as Xi has recently mentioned, seem to be on the horizon. To paraphrase Mao Zedong: “There is great disorder under heaven.” Let us hope that the Chinese leadership has the ability to turn the situation into an “excellent” one.
