China is seriously worried. Has the Peak of China’s Economic Growth Been Passed?

Has the Chinese economic miracle subsided? Unexpected American pressure and sanctions seriously scared Beijing? Is the world turning its back on China? What do Chinese pine and Russian birch learn from each other? Irresistible for Beijing Trump?

We are discussing these and other issues with a Sinologist at the University of Miami, Jun Dreyer, a military expert from the Lexington Institute, former senior Pentagon employee Daniel Gure and a China specialist from Endicot College in Massachusetts, Vitaliy Kozyrev.

On July 15, China’s deputy foreign minister summoned the US ambassador to Beijing with the obvious goal of reprimanding the United States for recent hostile actions. “I want to warn the United States firmly that any intimidation and injustice towards China will be met with a decisive counterattack from China and the American attempt to undermine China’s development is doomed to failure,” the deputy minister said. An unusual warning came after the United States publicly announced the illegality of Chinese claims in the South China Sea for three days, deprived Hong Kong of special status in relations with the United States, imposed sanctions on Chinese citizens and firms for violating the rights of Hong Kongers, secured the cancellation of company contracts Huawei on the construction of communications in Europe and started talking about the introduction of a ban on the entry of members of the Chinese Communist Party into the United States.

The Trump administration is demonstrating decisiveness at a critical moment for the Chinese authorities, when in the wake of the coronavirus pandemic and criticism in many countries of Beijing’s actions, analysts are raising questions about the viability of the Chinese economic model. For example, the American National Interest magazine published an article “Has China Reached Its Peak?” The answer is quite possible. Reasons: the country’s population growth is rapidly declining, the percentage of the working population is already declining, the country has a huge gender imbalance, Chinese exports – the main item of state revenue – are falling. And this is just the beginning, writes Merrick Carey of the Lexington Institute in Virginia.

Here is what his fellow institute Daniel Gouret says:

  • I think it is possible to present a quite convincing version in support of the thesis that China’s economic growth has peaked and will significantly decline in the future for various reasons, some of which are laid in the foundation of the economic and political system created in China. The most obvious factor is that China is running out of labor, an excess of which has allowed the creation of the current model of the export economy, which is based on a constant influx of cheap labor. While the Chinese authorities are trying to develop high-tech sectors of the economy, the success of these efforts is far from guaranteed due to the huge competition from the United States, European countries and even Israel, whose potential in this area is much higher. At the same time, China is gradually yielding export positions to its regional rivals, which are able to produce goods at a cheaper price. Moreover, Beijing’s aggressive policy is forcing China’s closest trading partners to reduce their dependence on the Chinese market, and foreign companies are increasingly diversifying production, relying on other Asian countries, which will inevitably affect the Chinese economy in the future.
  • In other words, do you think that it is premature to talk about the onset of the Chinese century, despite the fact that the Chinese economy has been growing incredibly fast for more than three decades and there have been forecasts that China’s GDP will surpass that of the American in 2030?
  • Indeed, what they managed to accomplish can be called a miracle. But that was the easiest part of the journey. China had a young population, it received gigantic volumes of foreign investment, access to the markets of developed countries was opened for it, in many respects it was provided with greenhouse conditions for development, for example, membership in the World Trade Organization with many benefits as an underdeveloped country. And China took full advantage of this. But now the low-hanging fruit is ripped off. A huge part of the Chinese economy is state-owned inefficient enterprises that are supported by government loans. The country’s banking system is in a deplorable state, it is burdened with trillions and trillions of debt that will not be returned. Yes, China has made an amazing leap forward, but what will happen next is impossible to predict. This suggests a parallel with Japan, which experienced explosive economic growth until the 1980s. Then they predicted the coming of the Japanese century, newspapers wrote about Japan Inc, the Japanese bought up American real estate, including, for example, the famous Rockefeller Center in New York – one of the largest office complexes in the world. What is happening to Japan today? She’s stagnant. The same can happen with China.