Why is Xi Jinping willing to slow down China’s economy?

Why is Xi Jinping willing to slow down China’s economy?

China's GDP grew a lower-than-expected 4.9 percent year-on-year in the third quarter of 2021, a whopping three percentage points less than in the previous period. It's a big deal for the world's second-largest economy, the only major one that expanded throughout the pandemic — and now at risk of missing its growth target of 6 percent for the entire year.

Normally, such a drastic slowdown would have put the ruling Communist Party in a tizzy. But this time, Xi Jinping knows this is the price he must pay for his big plans to curb rising inequality and boost the middle class at the expense of the CCP's traditional economic mantra: high growth above all else.


Why is GDP growth slowing down now? For one thing, a combination of rising coal prices, tighter regulations on power consumption related to climate policy, and soaring demand in countries that buy a lot of Chinese-made stuff have all resulted in an energy crunch that'll likely worsen disruptions to global supply chains that rely heavily on China.

For another, Xi's crackdown on excessive borrowing in the real estate sector — which accounts for almost 30 percent of China's economic activity but was so in the red that it posed a systemic risk — is causing a lot of pain. Evergrande and other large property developers are missing deadlines to pay their creditors, and halting projects for homes they've already sold but have no money to build.

Finally, there's the pandemic itself, via strict local lockdowns that have hurt Chinese retail and travel in the only country in the world that still believes in zero COVID.

China's leader thinks that an economic slowdown, however painful in the short term, will be worth it in the long run because the economy needs structural reforms to narrow the income gap and deliver what Xi calls "common prosperity."

In a speech that stunned the business community two months ago, Xi confirmed that "common prosperity" means vastly expanding China's middle class, partly by raising taxes on the rich. He wants some of this wealth to be redistributed in order to make China a more equal society. (Indeed, the 1 percent have seen the writing on the wall — a single mention of regulating "excessively high incomes" prompted several panicked CEOs to immediately donate billions to charity right when Xi was going after the tech sector.)

Xi's goal is for China's GDP to continue expanding, but at a less ambitious pace so Chinese workers have time to earn more and become more productive at the same time. China, he says, should move away from mostly churning out cheap exports that pollute the planet as Chinese factories have done for decades to focus on producing high-quality, sustainably-made goods for the local market.

But it's a risky move. Winding down economic activity to the 2-3 percent annual growth levels of mature economies like the US or Germany will be a tricky balancing act for China. Sluggish growth that drags on could deter investment, and trigger social unrest if unemployment gets too high as a result.

Meanwhile, slower Chinese economic growth will have serious ripple effects for the rest of the world, given China's outsize role in the global economy.

The so-called "factory of the world" will probably continue exporting a lot of stuff, but not as much as it did before, and more of its exports will be high-value tech goods. Local companies will also likely outsource more of their manufacturing to lower-cost neighbors such as Bangladesh or Myanmar, and over time most Chinese-made products will get more expensive.

Xi's "common prosperity" vision comes with many risks for China's juggernaut of an economy. But if he delivers on his promise, expect him to stay in power for a long time.
Two Black women hugging, with one woman pictured smiling

With half of all Black Americans excluded from the financial mainstream and Black-owned small businesses blocked from funding, we're working with city leaders and providing digital access to essential financial tools for immediate impact in Black communities. Learn more.

When Kyle Rittenhouse was acquitted on all counts, Pulitzer Prize-winning journalist Nikole Hannah-Jones, who created the "1619 Project" tweeted: "In this country, you can even kill white people and get away with it if those white people are fighting for Black lives. This is the legacy of 1619." In an upcoming interview with Ian Bremmer, she explains why she saw the verdict as a consequence of this country's long history of double standards when it comes to racial justice. "The fact that we own more guns in this country than any other country is certainly a legacy of 1619" Hannah-Jones says. "This idea that white Americans can patrol, that they have the right to open carry, this is not something that Black Americans can engage in, in the same way." Watch her full conversation with Ian Bremmer in an upcoming episode of GZERO World.

The supply chain mess is hitting all of us. Inflation is now the highest it's been in over 30 years.

The costs of food, gas and housing are going through the roof. What's more, almost everything made outside of America is now in short supply — like semiconductors for our cars.

Why is this happening? A lot of it has to do with the pandemic. Asian factories had to shut down or thought there would be less demand for their stuff. So did shipping companies. But then online shopping surged, and now there's a lot of pent-up demand to spend all the cash we saved during COVID.

More Show less

Veteran Korea correspondent and former AP Pyongyang bureau chief Jean Lee discusses the two Koreas with Ian Bremmer on GZERO World. From K-Pop supergroup BTS to Oscar-winner Parasite to Netflix global sensation Squid Game, South Korea seems to be churning out one massive cultural hit after another. And North Korea is taking notice.

Watch this episode of GZERO World with Ian Bremmer: The Korean Peninsula from K-Pop to Kim Jong-un

Subscribe to GZERO on YouTube to be the first to see new episodes of GZERO World with Ian Bremmer: http://bit.ly/2TxCVnY

The economic consequences of high inflation are already bad enough.

But for Larry Summers, sometimes the psychological trauma that comes with it can do even more damage to a society.

"A society where inflation is accelerating is a society that feels out of control."

More Show less
Should you believe the hype(rsonic)?

Over the past few months, US officials have become increasingly alarmed about a new type of killing machines called "hypersonic weapons."

The top US General, Mark Milley, said that China's successful test of an advanced hypersonic weapon earlier this year was "very close" to a "Sputnik moment" – referring to the Soviet Union's surprise launch of the world's first artificial satellite in 1957, which raised fears that the US was lagging behind a formidable technological rival.

More Show less

Marietje Schaake, International Policy Director at Stanford's Cyber Policy Center, Eurasia Group senior advisor and former MEP, discusses trends in big tech, privacy protection and cyberspace:

What is Facebook planning with the metaverse?

Well, my sense is that Facebook mostly prefers a virtual reality over the actual situation the company is in, with overwhelming criticism about the many harms to people it is causing all over the world. The metaverse at launch would be added to a number of services and experiences online in a more virtual and augmented reality setting. Think about what the gaming sector has done, but now, also, other big tech firms are jumping on the bandwagon. The thing to remember is that the user experience would be more immersive.

More Show less

Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares insights on US politics:

Why did President Biden renominate Jay Powell to be the chairman of the Fed, and who's his No.2, Lael Brainard?

Well, Powell by all accounts has done a pretty good job of managing the Fed through the coronavirus pandemic. He dusted off the playbook, first pioneered by Chairman Bernanke during the financial crisis, and he's largely continued the relatively easy monetary policy of his predecessor at the Fed, now Treasury Secretary, Janet Yellen. With inflation growing the way it has over the last several months, Biden now owns the policies of the Fed and is essentially endorsing what Powell has been doing and giving Powell the political cover to continue to keep rates low for longer, or as many people expect, raise them slightly over the next 12 months in order to fight inflation.

More Show less

Subscribe to GZERO Media's newsletter, Signal

GZEROMEDIA

Subscribe to GZERO Media's newsletter: Signal

How did we get to today's supply chain mess?

GZERO World Clips

GZEROMEDIA

Subscribe to GZERO Media's newsletter: Signal