Chinese Economic Collapse Threatens Xi Jinping’s Third Term. The Chinese economy is experiencing a near-complete collapse. On 15 August, China’s central bank suddenly announced a strong interest rate cut, a second cut this year, withdrawing cash from the banking system. However, analysts believe cutting interest rates will be challenging to stabilise the already shaken Chinese economy. Chinese Communist Party’s (CCP) worst fear comes to the fore that at the end of last year, it accepted that the triple pressure of “shrinking demand, supply shock, and weakening expectations “faced by the Chinese economy had no way to deal with the triple whammy.
The Russian-Ukrainian war and the closure of Shanghai have greatly aggravated China’s economic market volatility, so much so that in May, Chinese Premier Li Keqiang held a rare “100,000-person meeting”. It seems that the most challenging time is worsening.
It comes at a sensitive time for Chinese supreme leader Xi Jinping, who is expected to seek a third time in power this fall. When Xi came to power in 2012 and detailed his ‘Chinese dream,’ he didn’t anticipate how difficult it would be for him to win an unprecedented third term as the country’s leader. Meanwhile, forecasts for economic growth are showing a slack in the Chinese economy, new COVID cases threaten to close down the business hubs, and the US pushing back on Taiwan seem to be only a few worries on Xi’s mind.
Furthermore, youth unemployment in China reached a new record in July, with unemployment among the 16 to 24-year-olds rising to 20 per cent, according to a Bloomberg report. Additionally, for decades, buying property was considered a safe investment in China, but now it seems to be the reason for anger and resentment. China’s new home prices fell for the 11th straight month in a row for the period ended 31 July 2022. As developers defaulted on payments, the real estate crisis spread to banks loaning money for projects.
Chinese investors appear to be obsessed with real estate, tying up to 70 per cent of their wealth in this market. Nearly half a million customers have lost their deposits as the banks lent indiscriminately to housing developers now facing cascading defaults. Accordingly, across 100 cities in China, homeowners are banding together and refusing to repay loans on unfinished properties, indicating that wider social unrest could occur. Property ownership, once the central goal for many in the middle class, is no longer a certain means to enhance personal wealth. Protesting is often a dangerous business in China, indicating the seriousness of the situation and brewing trouble in the real estate market in China.
Such developments could lead to China’s collapsing economy in tatters, which investors should keep an eye on. Chinese companies have investments in US equities; therefore, economic issues in China could lead to a sell-off with these holdings.
If the Russian-Ukrainian war is still an uncontrollable factor, the closure of Shanghai is entirely self-inflicted by the Communist Party. The blow to the Chinese economy is immediate, direct and massive, not only affecting the domestic supply chain and the global supply chain. At the same time, it has also greatly shaken the international community’s perception of the CCP and the expectations of the Chinese economy. Its effect is challenging to eliminate in a short time. Moreover, the Chinese authorities have vowed to continue implementing the “zero policy”, such as the strict control of the resorts of Sanya and Tibet, which makes the economic outlook for the second half of this year even bleaker. In the end, China will have to monitor the rising nationalism carefully, as highlighted by the visit of Nancy Pelosi to Taiwan, where the increasing division between China and the US and its allies was evident. These crises, both home and abroad, will test the party’s original ideal of the ‘Chinese dream’ and their prowess in establishing China as the leading superpower in the world. Perhaps, 2022 will be a turning point for China and Xi Jinping.