The Center for Strategic and International Studies (CSIS) published a commentary providing insights from four Chinese business and economics specialists on the state of China's economy and what it means for the United States and the world moving forward.
In recent weeks, there has been a shift towards a more negative outlook on China's economy, the commentary said. So-called "structural" challenges have occurred, encompassing issues like debt, demographic patterns, and the evolving dynamics between China and Western countries. The commentary, published on Aug. 30, gives the views of these experts and attempts to predict the future trajectory of China's economic performance.
Logan Wright, a senior associate (non-resident) and expert on Chinese business and economics, said in the commentary the slowdown is the result of structural issues, particularly in the property sector. Wright argued that the once-resilient property sector, initially sustained by home pre-sales, is in decline, exemplified by a 57% drop in annual housing starts. This has emerged as the primary source of the economic deceleration, as it constitutes a substantial part of China's GDP, he said. Wright said that there has been nothing to replace the housing industry as a catalyst of growth, leading to the current slowing of the economy.
Wright also said the problems in the property sector have combined with China's centralization of business decision-making, which has wrecked the confidence of private businesses and investors.
Scott Kennedy, a senior adviser and trustee chair in Chinese business and economics, argued that centralization is, in fact, the main cause of the slowdown. Kennedy said it was too early to call the situation a permanent slowdown of the economy, but he said he has been to China three times in the last year and has personally witnessed the temperament of private business people.
Private business owners and entrepreneurs, he said, are becoming so worried about the economy that the success of the electric vehicle industry seems out of place. He gave three reasons for the common attitude: the poor response to COVID-19, the seeming attack against the private business industry and the concept of “common prosperity,” and the competition with the United States and the West. Kennedy’s takeaway was ultimately that the cause of the slowing economy is that the people of China are worried about the direction that their country is leaning, not so much that the market is declining.
John L. Holden said in the commentary that under current policies, a reform of the Chinese economy will be challenging. Beijing has tried to centralize power through ideological campaigns and what the government calls anti-corruption drives. Holden said these actions have stifled innovation, harmed the economy and veiled the real, underlying problem, which he said is the connection between corruption and state-backed incentives. Holden said profound reforms are required, but they seem impossible under the current government.
Claire Reade agreed with Holden’s stance on reform but, like Holden, questioned whether Xi Jinping would concede enough power to do so. Reade also said China has been historically resilient when it comes to the economy and advised against underestimating its ability to get out of the current slowdown.
According to the commentary, Reade said that moving forward, she expects China to be careful when it comes to investments. She said that China does not make negotiations which go against self-interest and that Xi Jinping has stated that China needs to stop dependence on the West. This, combined with the stress of the current economy, seem to suggest difficulties for U.S. negotiators in the future, said Reade.
