News Update

Future of Chinese economy: 'Japanification' is on the cards!

TIOL - COB( WEB) - 884
SEPTEMBER 07, 2023

By Shailendra Kumar, Founder Editor

SO, it is finally official now! The Chinese President, Mr Xi Jinping, is not coming to New Delhi for this week's scheduled G20 Summit. And his 'DNA friend' who has, of late, become kindred spirit to him, cannot make it as Kremlin's gothic windows under Ukrainian drone-attack, largely remains shuttered! Secondly, it is clear-eyed that the Chinese President who often suffers purgatorial bouts of surreal and megalomaniacal bruises, cannot witness New Delhi regaling the centre-stage of geo-economic and geopolitical floodlight a la India's Presidency of the G20! Thirdly, Mr Jinping prefers playing squint-eyed when it comes to holding dialogue eye-to-eye and across the table with its strategic rival the United States of America. Going by some of his enigmatic demeanours at the last BRICS Summit in Johannesburg and a deliberately-designed ornamental tête-à-tête with the Indian Prime Minister, it was almost certain that after his return to Beijing, he would prefer pondering behind the iron curtains rather than encountering some unsavoury moments with the world leaders in New Delhi! Interestingly, it also means that he is running out of hyperboles and the world is going to witness more of his paranoia like hiring common Chinese citizens (counter-revolutionaries like Mao Zedong) for his anti-espionage campaign!

When Mr Jinping had assumed powers in November 2012, he was mindful of exercising restraint while unleashing his dictatorial streaks! His initial bouts of autocracy were widely seen as something natural which goes hand in hand with the stature of the Chinese Communist Party's helmsman. The Chinese economy was sweetly thriving and Mr Jinping had ample surplus resources to divert towards defence sector. He kept on strengthening the 'Dragon-arms' of the PLA. He had a dream, unlike Martin Luther King Jr, to make China a military power to be reckoned as 'infallible and invincible'! When his second term rolled out, he could not hold back the hurricane intensity of his dream for territorial expansionism. And it sprang out on multiple fronts - the under-guarded Indian borders; South China Sea; small islets, reefs and several boundaries in the Gulf of Tonkin. He laid maritime claims to various islands of Japan, Philippines, Vietnam and Indonesia. Then a claim to gobble up entire Taiwan after gulping down Hong Kong without even a burp! He has come to be demonstratively known for his limitless appetite for new territories which he claims as China's ancient assets grabbed by others. Then landed in his city of Wuhan the virulent virus of COVID-19. He first played the nasty game of blaming others for the virus and then pulled down iron curtains over China's land borders, ports and airports as part of his 'Zero-Covid' policy! The country remained cut off from the rest of the world for three-long years which atrophied its economic and financial muscles extensively.

Before I swirl to the upended state of the Chinese economy, let me first outline the geopolitical reasons for his absence in New Delhi! Harbouring the dream of being undisputed power in Asia and an able claimant to superpower pedestal, China cannot tolerate India grabbing geopolitical spotlight! Last fortnight he attended the BRICS Summit only because he wanted to bulldoze through and ensure admission of some of the countries which are known as China's acolytes. The fact that nothing more than offering membership to the six countries was debated, Mr Jinping sees BRICS as his tailor-made forum to sharpen his blade of influence in the Global South. Though he has always attended the G20 Summit in the past but this time, Mr Jinping did not like it being chaired by his sworn rival in Asia! One inevitable fall-out of his decision to skip G20 is going to be a thorny time ahead for New Delhi which cannot now expect to navigate through the rugged terrains on its borders in the near future! It also means that the military stand-off would continue to fester till diplomatic manoeuvring succeeds in mollifying the sentiments on either sides! Sporadic flare-ups among the chest-thumping soldiers would be unavoidable consequences of the geopolitical inflammation and even predictable peccadillos like releasing distorted map of India!

China is apparently immensely irked by another Quad member from East Asia - Japan, which has not only entered into a hurried security pact with the US and South Korea but also allocated eye-watering quantum of defence budget - about USD 53 billion for the current fiscal. Japan is also worried over the frequent ballistic misadventure of North Korea whose belligerent emotions are regularly stoked by China! Leave aside its East China Sea issues and ancient cultural animosity during 1930s and 40s, even a scientific decision of Japan to release wastewater from its Fukushima nuclear plant into the Pacific has snowballed into a major trade war irritant with China. Beijing has recklessly responded by banning import of marine products from Japan as it has called them contaminated fish, which may poison humans! Mr Jinping's propagandists are working extra time to spread rumours which have led to salt-buying frenzy in rural China. Rural folks have come to believe that salt may become tainted! To foil the fear-mongering drive, the Japanese Prime Minister had to resort to photo-op sessions, relishing fish netted after the release of nuclear wastewater! Japan has also moved WTO against the Chinese ban.

Geopolitical experts say without flinching that one of the tangible reasons for disproportionate reaction of China to the nuclear wastewater issue is Mr Jinping's attempt to keep his people engaged with phooey activities and away from the brackish and vinegary economic ground realities gripping the Chinese economy. Only recently, the US President Joe Biden commented that the Chinese economy has turned into a 'ticking time-bomb' because of its fast-ageing workers and rising mass of unemployed youth! Some economists describe the prevailing malaise of China as 'long Covid' and 'Lehman moment'! However, I believe that China is swiftly sliding into the cycle of 'Japanification' - unmanageable mountain of debt; ageing population and a stride toward deflationary trap! Consumer prices have been on the slide in the past six months. Unemployment for the youth aged between 15 to 25 has peaked to 21.5% and horrified government has stopped publishing fresh data! Its exports has nosedived by more than 15%. Its currency has taken a severe beating! Govt debt to GDP ratio has leapfrogged from 26% in 1995 to 79% in 2022.

Its property sector which accounted for one-third of its GDP growth and about 20% of national wealth has been suffering from what may be called "Propert-isis" - a cancer of incurable nature! Its biggest developer Country Garden is on the cusp of default with USD 187 bn in debt. It's another large property company Evergrande is sinking and has filed for bankruptcy in the US. Since Chinese people prefer keeping their savings in the form of property, they have been fretting over the crisis and have avoided even domestic tourism, impacting hotel and aviation sectors. Let's not speak about the health of luxury goods sector which was galloping prior to the pandemic! Its 21 trillion yuan trust industry has turned untrustworthy. Chinese trusts were the most reliable conduits to funnel funds from investors to infrastructure and real estate but they are now defaulting and going for restructuring! No borrowing from banks is allowed and it is killing them! E-commerce sector and new age tech sector have lost the animal spirit and turned sick, thanks to Mr Jinping's weird and outlandish halo of governance!

I do not see any glimmer of hope for China in the near future because it has shockingly gyrated away from growth and business to hard-boiled politics. Mr Jinping who has transformed the country into a complete totalitarian system, lacks requisite economic credibility to bounce back like a scalded cat! Falling reserves, declining consumer prices and currency-beating are definitely going to erode a few trillion dollars from its GDP. Its financial muscles to go for a large stimulus package have atrophied. At best, it can only reduce interest rates but when the appetite is missing, how will it help? China now needs to spend more on pensions and infrastructure. A case of Scylla and Charybdis on the same side of the strait, indeed! What may sound more strange is that Mr Jinping does not give a fig about the falling growth and skyrocketing joblessness as he wants to realise his socialistic dream of "shared prosperity". He also prefers gassing up the nation on nationalistic issues like Taiwan and tit-for-tat response to America on various policy issues.

As a result, Mexico has replaced China as the US number one trading partner; followed by Canada. Friend-shoring, near-shoring and China-Plus-One slogan for global supply chain has indeed taken impressive roots in the past two years! But such tectonic shift does not wrinkle Mr Jinping's forehead as he relies more on his propaganda machine for crafting opaque and tangy messages and shaping public opinion! How long such propaganda would buy him oxygen is to be seen to be believed! However, history of commissioning propaganda ministry by the dictators in the past does not seem to be favouring him! A bit of downer! Against such a bitter backdrop and battered economic indicators - kryptonite for his geopolitical dreams, what may now perk up Mr Jinping's mood are only the psychedelics or cannabinoids, perhaps, uh, only in the short-run though! Au revoir!


TIOL Tube Latest

GST Council Recommendations - Time for ’Peek & Poke’!

Mr. Nikhil Gupta, Global Indirect Tax Lead, Wipro Enterprises Pvt Ltd sharing his thoughts at the TIOL Awards 2022 event.

Mr. Vishweshwar Mudigonda, Partner, Deloitte Touche Tohmatsu India LLP sharing his thoughts at the TIOL Awards 2022 event.