China’s rapid economic growth, and the development of Shanghai, Chongqing, and Shenzen into modern metropolises, might easily give observers the sense of a successful country, full of confidence. Clearly that is what President Xi Jinping wished to convey in presenting what one senior banker described as “the most comprehensive and ambitious reform plan in the history of the People’s Republic”.
But in fact these perceptions are wrong. China is on the edge of a major crisis, and the reforms announced are in fact quite modest and will be unable to deal with the most pressing needs for change.
China’s rapid growth from 1980 to 2010 was built on a convergence of several factors: a big increase in the working-age population fuelled by pro-birth policies in the Mao years; a rapid increase in productivity through foreign investment and farmers moving to urban and factory work; cheap raw materials and labour; and a booming market for exports from the world’s rich economies. All of these factors are now going or gone.
Before 2000, China was self-sufficient in oil; now it is the world’s largest importer, and oil isn’t getting any cheaper. Labour costs have grown while surplus labour has shrunk, as three decades of the one-child policy means China’s working age population will likely fall by 20% in the next 40 years, and by a further 20% from 2050 to 2100.
Since 2008, the rich countries that buy Chinese exports have seen minimal economic growth, if any. China thus has sustained its expansion only by using state funds to boost the economy with construction projects and by using state-guided banks to flood the economy with credit. Meanwhile, private consumption has lagged, university graduates cannot find jobs in what remains basically a blue-collar manufacturing and construction-based economy, and the environment has been degraded beyond tolerance by the strategy of “build, build, build”.
There is only one way to prevent the coming serious growth crunch – and that is to shift China from a construction-based economy to one based on innovation and white-collar work. But that cannot happen if the government continues to restrict personal freedom and to control the population and economy from above.