Rishi Sunak and Keir Starmer have both outlined their strategies in a five-point plan, demonstrating their confidence in their approaches. Meanwhile, the Chinese government has taken a more extensive approach, announcing a 31-point strategy to address its economic challenges.
China’s recent GDP growth of only 0.8% in the second quarter of 2023 has raised concerns in Beijing. It is clear that China’s economy requires a rapid boost. The Chinese Communist Party (CCP) has previously targeted the private sector, fearing that companies like Tencent and Alibaba have gained too much prominence. Now, the government aims to create a more favorable environment for entrepreneurs, aiming for it to be “bigger, better, and stronger.”
This urgency stems from China’s economic recovery stalling and the CCP’s reliance on Xi Jinping’s government to establish a “Chinese dream” of a middle-class lifestyle. When Covid restrictions ended eight months ago, there was a significant surge in consumption, as people eagerly booked long-awaited holidays. However, in recent months, worrisome signs have emerged. Youth unemployment is on the rise, with around one in five 16- to 24-year-olds in China unemployed in June. Many university graduates have resorted to becoming delivery drivers due to the lack of professional opportunities, leading to frustration and the perception of useless degrees.
Interestingly, there are ample job opportunities available, particularly in rural areas where there is a severe shortage of teachers. Unfortunately, few urban graduates are willing to live in underdeveloped villages lacking basic amenities like running water. Additionally, China’s strict “residence permit” system restricts young people who move to the countryside from returning to the big cities.
Looking ahead, China will face the opposite problem in a few years. Due to the three-decade-long one-child policy, China’s working-age population will decline from the 2030s. Technological advancements will be crucial in creating new jobs for the smaller workforce while generating enough growth to support pensions and healthcare for the rapidly growing elderly population.
Despite concerns that China may be facing decline, there are numerous factors that could improve its situation. China invests 2.5% of its GDP in research and development, particularly benefiting its highly innovative technology sector. Additionally, China boasts the world’s second-largest single market and a per capita average GDP of $12,000, more than twice that of India. These factors present significant opportunities for economic growth and development.
However, China also faces self-imposed challenges. The notion of “security” has become a focal point in Chinese politics, encompassing various issues beyond traditional military or national security, including economic and cultural security. Reports highlighting local government debts have been censored, and journalists have been threatened with legal action for jeopardizing financial stability.
A free flow of information is essential for a modern economy, but in China, economists and entrepreneurs may hesitate to express inconvenient truths due to the fear of reprisals from the state. This reluctance to take risks has led to a prevailing sentiment of “If I do nothing, I won’t do anything wrong.”
The overall political climate further contributes to uncertainty. The unexplained disappearance of China’s foreign minister, Qin Gang, and other high-profile figures like Jack Ma adds to the opacity of China’s political sphere, undermining economic confidence both domestically and internationally. While few businesses advocate for democracy in China, there is a widespread call for greater transparency. Thus, the 31-point plan includes assurances, albeit without guarantees, to prioritize the rights and interests of private entrepreneurs.
One factor that could completely halt China’s economy is a confrontation over Taiwan. Any military conflict in the region would disrupt supply chains, prompt investor flight, and result in significant mutual sanctions between China and its Western business partners. Such a nationalist war would be deeply unpopular among Chinese professionals who value financial security, affordable mortgages, secure pensions, and subsidized healthcare for themselves and their parents.
In many ways, China’s turn inward reflects a broader global trend. While Brexit Britain seeks new markets abroad, the US, China, and the EU are embracing protectionism. China possesses valuable assets such as widespread urban education and an innovative private sector. However, to thrive, China must prioritize openness, transparency at home, and a peaceful relationship with its trading partners worldwide. Without these essential factors, no matter the length of a plan, whether it be 31, 56, or 93 points, it will be insufficient.
In conclusion, a comprehensive and strategic approach is necessary for China to address its economic challenges and ensure sustained growth in the future.
Source: Rana Mitter is ST Lee Chair in US-Asia Relations at the Harvard Kennedy School
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