Since Reform & Opening up (and to an even greater extent after the Tiananmen uprising) the Communist Party has used China’s torrid economic growth to justify its absolute unchecked power. By pointing to slower growth in emerging economies like India and the recessions of developed democracies, the CCP can proudly tout the superiority of its system.
But things are changing. Just about every economic indicator for China is headed downward. Mass factory layoffs/closures, sharply declining steel production, a pile up of unsold cars…you name it. Serious questions are being raised over the “superiority” of China’s command and control economy, which pushed down interest rates, forced excessive loans (MANY of which are starting to go bad) and created what could be the biggest real estate bubble in history.
Over the next few months we should start to see an answer to the “hard vs. soft landing” question. Since talk of a possible hard landing began, I’ve often wondered how China’s propaganda apparatus would respond if and when China’s economy takes a sharp turn south. The party can’t exactly just say, “Oops. I guess our system is deeply flawed and not as superior as we led you to believe.” Its legitimacy lies almost completely in the idea that efficient economic growth is a result of its authoritarian model.
A few weeks ago People’s Daily gave a little clue as to how the party might be planning to address this issue. Unsurprisingly, it looks like it will go with the standard approach of “It’s not that bad; and anyways, it’s the West’s fault.” The piece said:
The Chinese economy is slowing down due to both international and domestic factors.
Internationally speaking, the weak growth in developed countries caused by the global financial crisis has had a marked negative impact on the Chinese economy. China’s trade surplus rebounded greatly in the second quarter, but not due to the acceleration of export growth or slowing down of imports. In fact, the growth of China’s exports to the United States, Japan, and Europe has slowed down markedly, becoming a major constraint on economic development in the eastern regions.
Domestically speaking, China’s economic slowdown is a legacy of the global financial crisis. In order to resist the crisis, China introduced a large-scale economic stimulus package, which created objective conditions for subsequent inflation and soaring housing prices. The country then adopted a series of macro control measures to curb the inflation and cool the overheated property market, when the contribution of consumption to its GDP growth failed to increase markedly. This countercyclical action has inevitably caused a slowdown in domestic demand.
So whether it’s domestic or international problems, no fault lies with China itself. The rest of the piece downplayed the idea that China’s economy is in serious trouble anyways, with a touch of “look on the bright side” (inflation is falling). It seems a likely double-pronged approach: Pretend that a hard landing isn’t happening and blame foreign countries for the minor economic hiccup that has to be acknowledged.
Many of the points the piece raises are valid. If it wasn’t for the US-created 2008 financial crisis, China wouldn’t have injected its $586 billion stimulus (which has largely gone into fruitless projects) or required banks to give out a ludicrous $2.7 trillion in loans (ditto). So in that sense, a fair amount of blame does belong to the US for setting the stage for China’s potential hard landing. Europe certainly hasn’t done anything to help matters either.
But the mismanagement of the economy by the Chinese government is where the lion’s share of the blame rests for China’s economic woes. When faced with an economic crisis and potential unrest, the government opted (as always) to secure short-term stability at the cost of long-term sustainability by throwing cheap money at the problem and trying to guide the invisible hand of the market too forcefully. “The debt-ridden western countries are to blame” argument can only stretch so far.
But accepting blame and owning up to deep systematic flaws with its economic model aren’t in the CCP playbook. So it’s likely we’ll see that argument stretched to its very limit. The question is, will people buy it?