“Letter from Asia” published in L’Opinion, 28th june 2023
President Xi is focusing his energies on the international stage, but, given the lack of any real recovery, he should be questioning the soundness of his new economic model.
Even the Party’s official propaganda now openly admits that the recovery is just not happening in China. People are already aware that real estate has been crippled for the next ten years, but they have now found out that the neo-Marxist-Leninist agenda announced at the 20th Congress last October has strangled at birth the three main elements that were supposed to bring about recovery.
Firstly, domestic consumption. Far from being the manifestation of a new “Common Prosperity”, it has only progressed in the fields of domestic tourism and catering, which reflects the “low expectations” of the population. The unemployment level of young graduates — officially put at 20% but actually far higher — is still weighing heavy on this age bracket, which is the main consumer group.
Secondly, private investment. Instead of rallying, it remains stable at the very depressed level it sank to last year. There is a continued lack of confidence because of regulations that are as far-reaching as they are vague, and this is restricting innovation, particularly in the burgeoning sector of artificial intelligence.
Thirdly, exports. The recent downturn, reflecting the slowdown in Europe and the United States, confirms what was said by Joerg Wuttke, the outgoing President of the European Union Chamber of Commerce in China: “China today needs Europe more than Europe needs China.”
“Will there be return to confidence on the part of households that will help advance those sectors (healthcare, sport, well-being…) on which “post-Covid” hopes were built?”
“The dead cat’s bounce.” With these three hindrances, China will undoubtedly have to look for its salvation at the hands of Yi Gang, President of PBOC (the central bank), and a miraculous survivor of the purge that followed the 20th Congress. Having injected cash into the economy, Yi Gang has just announced an initial decrease in interest rates, contrary to other central banks.
At this stage, the financial markets see this only as a dead cat’s bounce — a short-lived recovery within a long-term downturn. However, in the coming months, an objective look should be taken at all the possible factors that could reverse the situation. Will there be return to confidence on the part of households that will help advance those sectors (healthcare, sport, well-being…) on which “post-Covid” hopes were built? Will the 12 million young people who have just graduated find jobs that come up to their expectations? Will private investment be aided in a more concrete way than by the media-hyped but ineffective visits of Jack Ma and Bill Gates? Will China and the USA bury the hatchet during the US presidential election campaign and thereby revive exports?
The early days of 2023 proved once again — as if proof was needed — that President Xi is a clever politician, for he chose to focus his energies on the international stage, scoring a remarkable number of diplomatic successes, particularly regarding the “Global South”. Although he has taken care to distance himself from domestic economic problems, the lack of any real recovery is now forcing him to question the soundness of his new economic model which, despite the would-be reassurances of his government, is proving to be entirely state-run.
After so much bad news since the beginning of the year, is there any good news to come? No one can claim to know the answer to that question with any certainty. And yet, the future of a great many European industries depends upon it.