China’s rise: myths, realities and implications
China is currently the world's second-largest economy and its foremost importer. However, just forty years ago, it was a predominantly impoverished and rural nation, with over 30 per cent of its population living in poverty. This trajectory began to shift in 1978 when Beijing initiated major economic reforms.
The initial reforms focused on agriculture, permitting farmers to sell surplus crops in the open market. The success in the agricultural sector, coupled with a more open approach to trade, paved the way for the privatisation of other state-owned enterprises. By 1980, China had joined the World Bank and the International Monetary Fund. In the same year, four special economic zones were created to attract foreign direct investment. This marked the beginning of an influx of major companies rushing to China, establishing factories, and capitalising on the abundant and affordable labour.
A pivotal moment came in 1990 when the stock markets opened in Shanghai and Shenzhen. This period witnessed remarkable economic growth, averaging an impressive 10 per cent annually. Over the past 45 years of Beijing’s economic reforms, millions of people have been lifted out of poverty. A fair assessment of China’s economic rise can be categorised as nothing short of a miracle—one that the global economy has increasingly come to rely upon.
Fast-forward to 2023, scrutiny of China's economic report card, predominantly conducted in western capitals, indicates that the nation's $18.3 trillion economy is staring at a crisis that has the potential to slow down the global financial engine. And judging from the media coverage, also emanating from western capitals, it appears that Beijing is teetering on the brink of an economic meltdown. The reports are increasingly negative, prompting my sceptic’s radar to flash a bright red warning against hastily accepting conventional wisdom.
There is also much to be considered before we come to that ultimate conclusion and write China’s economic obituary. The country, often recognised as the world’s largest factory or the global engine, has displayed remarkable performance over the last three decades. Its consistent and extraordinary high growth propelled the economy from low-income to upper-middle-income status and successfully executed large-scale poverty reduction. And until the COVID-19 pandemic disrupted its momentum, the Chinese economy demonstrated resilience through various periods of domestic and global upheaval.
Even amid the global health crisis, as major economies worldwide faced contractions, China not only remained in positive territory but also rebounded faster than predicted and in a much better shape than most developed economies. It exceeded growth estimates for the first quarter of the year, propelled by the country's relaxation of stringent COVID-19 restrictions and a surge in consumer spending.
A report by the National Bureau of Statistics revealed that the world's second-largest economy saw a robust growth of 4.5 per cent compared to the corresponding quarter a year earlier. This surge, marking the fastest growth in a year, outpaced the 4 per cent forecast made by analysts in a Reuters poll. In March this year, the consumer economy displayed clear signs of a resurgence, as retail sales witnessed a substantial uptick of 10.6 per cent. This surge not only marked the most significant jump in almost two years but also exceeded the forecasted rate by more than double. Concurrently, industrial production for the same month reached a notable milestone, hitting a five-month high with a 3.9 per cent increase compared to the previous year.
Setting aside all other considerations, last month, the Wall Street Journal reported another significant achievement. According to the leading US-based business newspaper, Beijing crossed a significant threshold: for the first time in over four decades since its economic opening, it engaged in more trade with developing countries than the combined trade of the US, Europe, and Japan. This marks a clear indicator that China and the West are diverging on various fronts. It also signifies Beijing's prioritisation of economic partnerships with any country interested in doing business.
However, unfortunately, like many western economies, there are indicators suggesting that China's economic momentum may be slowing down in the foreseeable future. There is deflation, a property market crisis, and unemployment – nothing that the West has not faced or is not wrestling with, even now. Quoting the IMF, the BBC recently cautioned that the economic outlook for the UK is gloomy, predicting the country to face the highest inflation rates among G7 economies in both 2023 and 2024. Similar warnings have made headlines about other major economies in the eurozone, currently seemingly ensnared in the midst of another recession. Unlike China, which has some room to rebound from the transitory economic ailments, Europe is grappling with growth stagnating around zero with little out there to fuel a meaningful recovery.
That being said, there is no doubt in my mind that Beijing’s economic rise has disrupted the world's geopolitical balance – once solely dominated by Washington. Expected to drive a third of global economic growth this year, the transitory slowdown of the Chinese economy in recent months is ringing alarm bells worldwide. However, when US President Joe Biden referred to the economic challenges as a "ticking time bomb," it did come across as hyperbolic and akin to the pot calling the kettle black.
Inflationary pressures, combined with unemployment, and the expenses associated with conflicts in Europe and the Middle East, are adversely affecting Biden's economic report card. Signs are already piling ahead of the next presidential election, raising concerns that the long-awaited US economic slowdown has begun—a factor that might contribute to Mr. Biden's potential electoral defeat in 2024.
Despite the short-term challenges, President Xi Jinping’s government does not seem to be facing similar issues at home and appears to be focused on solidifying confidence in China’s economy. While the west is interested in amplifying China’s economic woes, observers believe that such ‘cold war’ ‘camp mentality’ no longer serves the global community in the era of interdependence.
China’s position
"I perceive this as a self-defeating strategy for the West to invest heavily in downplaying China’s role in the global order and the financial system," commented Dr Talat Wizarat, a prominent foreign policy expert based in Karachi.
Wizarat continued, "Beijing enjoys several advantages. Firstly, an increasing number of developing countries are eager to conduct business with China, and notably, in their local currency.” “This poses a significant setback for the dollar's dominance in the future," said the author of 'Belt and Road Initiative - Emerging World Order,' a book that provides analyses on President Xi Jinping's vision of connectivity and cooperation. On the other hand, Wizarat cautioned that the US and other western countries have not been able to establish similar economic relations with developing countries.
The Karachi-based foreign policy expert pointed out that Beijing’s strategy has been centred around engagement with the world and not invading or engaging in territorial conflicts. “Washington, unfortunately, has developed a reputation of an occupying power – from Afghanistan to the Middle East.”
The West, collectively, Wizarat emphasises, must let go of the Cold War mentality and the era of camps. "That is history. If you persist in studying and treating China as a Cold War adversary, and continue to analyse it in a similar manner, both your analysis and policy responses are miscalculated. China is a global driving force, and the world will have to learn to work with it rather than against it.”
The global standing
According to Wizarat, an extended deceleration in China's growth would be detrimental, rather than beneficial, for the global economy. However, the analyst pointed out the significance of the term BRICS, representing a coalition of major emerging economies with China at the forefront. “BRICS serves as a geopolitical counterweight to the West, including institutions like the G7,” she emphasised. Wizarat highlighted other initiatives, such as the China-Pakistan Economic Corridor (CPEC), stating that they grant Beijing a strategic advantage that Washington has been unable to secure despite its years of global dominance. The maturity of the CPEC, she said, places China and even Pakistan in a much secure economic position.
Wizarat believes that Beijing sets its goals in the long-term rather than short-term. “Its results are also more pronounced in the long-term. The reforms unleashed by former Chinese leader Deng Xiaoping powered decades of rapid economic growth. What President Xi is doing will take China in terms of the major initiatives through the next phase.” She mentioned that Beijing has already positioned itself as an equal partner, an important stance in a period when the global north often exhibits distance and condescension toward the global south.
For Pakistan in the long run, Wizarat emphasised, “Islamabad needs to recognise that CPEC is a lifeline for the country. It should liberate itself from the influence of Washington-dominated lenders like the IMF and prioritise strengthening its cooperation with Beijing.” Decades of a transactional relationship with the US, she noted, have left Pakistan isolated and somewhat reliant on its financial support.
Moving forward
It is often said that when America sneezes, the world catches a cold. It might be fitting to suggest that when China coughs, the world now struggles with pneumonia or a more serious respiratory ailment. Despite widespread assertions in the West terming China's economic challenges as terminal, Beijing appears to be challenging all such assessments of its performance and economic future.
At the recent Central Economic Work Conference, a closed-door annual conclave, China's top leadership convened to deliberate on immediate challenges and long-term economic trajectory. According to Wizarat, an expert who recently authored a book on President Xi's Belt and Road Initiative, Beijing seems to be steering in the right direction.
Analysing details emerging from the CEWC, Wizarat noted that China is strategically investing in economic recovery. “The nation is prioritising the strengthening of domestic demand, with targeted spending in crucial sectors like new energy vehicles (NEVs) and consumer electronics to strategically stimulate consumer expenditure.” The expert highlighted Beijing's commitment to deepening reforms, particularly in fiscal and tax systems, aiming to rectify imbalances between central and local governance structures.
Furthermore, Wizarat pointed out that the Central Economic Work Conference outlined a plan to expand openness, particularly in pivotal sectors of the Chinese economy such as healthcare, services, and telecommunications, fostering increased participation and collaboration. This multifaceted strategy, according to Wizarat, demonstrates China's commitment to ensuring a resilient economic path in the future.
When questioned about the potential impact of China's short-term economic challenges on its long-term growth prospects, Wizarat rejected the notion, asserting, “There is ample evidence that China is poised for a complete recovery from this temporary, or rather seasonal, downturn. In contrast, the West is likely to endure a more protracted economic stagnation, influenced by its misplaced priorities and short sightedness that is on display in the conflicts in Ukraine and the Middle East.” Wizarat further emphasised that Beijing stands out not because it is immune to global financial pressures but due to the distinctive structure of its economic system.
At present, accounting for 40 per cent of global growth, some Western analysts express concerns that China's escalating debt could lead its economy to a precarious position – more precisely ‘hit the wall’. However, when compared, the gross debt levels in China are not disproportionately higher than those observed in other major economies, including the United States and Japan. And even while all global alarm systems are aimed at exposing Beijing’s failures, notable economists believe China is far from a major economic crisis.
In his assessment for the IMF this month, Eswar S. Prasad, an Indian economist, highlighted that the Chinese government has displayed a remarkable ability to navigate severe economic and financial challenges arising from its previously inefficient and risky growth model. Beijing, he wrote, has successfully averted potential crises, including the looming threats of a banking crisis, significant currency devaluation, housing market collapse, and economic downturn. In short, Prasad asserted, “China stumbles, but it is unlikely to fall.” Examining China from a distinct global perspective, Wizarat suggests that apprehensions regarding a potential economic free fall should be a primary concern for the West, given the observable signs of weakness in its economy.