A change of economic direction requires a change of political ideology. Judging by the Chinese Communist Party’s (CCP) tightening grip on life recently and President Xi’s tightening grip on the CCP, this doesn’t look likely. The leadership might argue it is not even necessary.
In some ways, China is a victim of its own success. The current rate of growth is only considered “slow” when you compare it with the staggeringly high numbers of previous years.
Since 1989, China has averaged a growth rate of around 9% per year. In 2023, that figure is predicted to be around 4.5%.
It is a big drop off, but still much higher than the economies of the US, the UK and most European countries. Some have argued that this suits China’s leadership just fine.
Western economies tend to be powered by people spending, but Beijing is wary of this consumerist model. Not only is it deemed wasteful, it is also individualistic.
Empowering consumers to buy a new TV, subscribe to streaming services or go on holiday may help stimulate the economy, but it does little for China’s national security or its competition with the US.
Essentially, Mr Xi wants growth, but not for the sake of it. This may be behind the recent boom in cutting-edge industries, such as semiconductors, artificial intelligence and green technology – all of which keep China globally competitive and make it less reliant on others.
This idea might also explain the government’s limited response to the faltering economy. So far it has only tweaked around the edges – easing borrowing limits or shaving a fraction off interest rates – rather than pumping in large amounts of money.
Foreign investors in China are worried and want the government to take action quickly, but those in charge seem to be playing the long game.
They know that, on paper, China still has massive potential for more growth. It may be an economic powerhouse, but average annual income is still only $12,850. Almost 40% of people still live in rural areas.