China is a subject worth debate in the world of economics. The global supply chains are now irrevocably linked to the production capabilities of China. The nation has come much forward to occupy its current position as the factory of the world.
The phenomenal growth has come to the nation with some grave costs to pay.
On Thursday, public officials in the major city of Chengdu reimposed the covid zero policy, in the light of newer cases sprouting. This will mean another round of mass testings, closed businesses, and life harrowed by a knee-jerk policy. The total number of cases recorded was 32.
This is but one of the several policymaking problems which engulf China today. What most people living outside don’t understand is the policy harping is a mere repercussion of something grave.
What China is facing today is a mere tip of a vast iceberg. The speculation-led spurious growth and its unsustainable nature of it made sure that the national debt piled up as the purchasing power of people waned with the rise of prices.
Chengdu forms around 1.7% of the Chinese GDP and is home to around 17 million people. With the entire policy basket of covid-era refusing to tone down, the recovery seems uneven & unlikely.
The question assumes importance as the leadership shuffle of the Communist Party of China is going to be done on October 16.
Most likely, Xi Jinping will retain his position as the premier of the nation for the third term.
The problems of China are vast on the scale of the economy. These problems are equally complex due to unplanned growth promoted by the State in order to mark a rise in GDP.
Real estate and construction form around 30% of China’s GDP. The vast housing and public facility infrastructure projects are an object of awe and comparison for people around the world.
The dark underbelly of it is the steep financial crisis due to the failings of credit repayment to the banks. The financial system of China is dominated by State-run banks. For years, these banks were pushed by the government to lend capital at lower interest rates. Massive corruption of /state power & capitalist greed ensured that the lending continued to happen even at the cost of poor recovery and creation of assets unable to recover their investments.
The news of an intentional devaluation of the Yuan comes often primarily to control the losses in this regard. The cheaper currency will mean incentivizing exports, and increasing demand for the goods and services with good tax revenues for the State.
However, it is a temporary measure and can only be done when the geopolitical tides are in favor of the said nation.
With several nations raising their concerns against an aggressive China and coming together in the covid era, the cycle has been interfered with.
Added to this is the lack of any essential exports like food, defense, or energy on part of China to maintain its leverage on the global financial system.
Yuan has predictably become more volatile in recent times. This is also happening because the supply chains becoming more ‘resilient’ from the Chinese influence.
The barbed contours are what could be used to best describe the trajectory of the China story today. Perhaps, the repercussions wouldn’t be limited to China this time, just like the pandemic that engulfed the world.