Whither China?

From time to time I’ve written about the troubles facing China, mostly focusing on demographics and resources. Today at Business Insider Linette Lopez has a long, fascinating article on China’s economic crisis—and every crisis in the Chinese economy threatens a crisis in Chinese society and politics. It’s the nature of things in China. I picked the article up at FR:

If China's economy keeps stumbling, it won't just take down Beijing — the whole world will collapse with it

The article is far too wide ranging and detailed to summarize, but I urge all readers to read the entire article. For my purposes I want to focus on just a couple of factoids that Lopez presents that give a snapshot of the enormity of the problems that China faces.

Discussing the rise of China’s economy, beginning under Deng Xiaoping in 1984, Lopez describes the shift of population in China from the countryside to the cities:

Freed from direct government oversight, and flush with free-flowing loans, China's manufacturing sector boomed. People from rural areas flocked to fill the privately-owned, debt-built factories, and a middle class took shape. In 1992, 27% of the country lived in urban areas. By 2020, the number had grown to 61%.

Two points about that.

First, I checked Wikipedia. China’s population is 1.4 billion. Try to wrap your mind around hundreds of millions—maybe as many as 500,000,000 people—moving from the boondocks to the big cities. This would be nothing like such an event in the West, where people in the country know how to read and write and know about things like indoor plumbing. As is the case with all Chinese stats, these numbers have to filtered. According to Wikipedia:

China's literacy rate has grown dramatically, from only 20% in 1949 and 65.5% in 1979 to 96% of the population over age 15 in 2018.

China is a rapidly greying nation. I don’t buy that between 1979 and today hundreds of millions of the elderly miraculously became meaningfully literate. The reality is different. My point is that the sheer daunting logistics of this mass migration on an unheard of scale in such a short period of time is only one part of the problem. Integrating the migrants into city life is an ongoing process, a cultural shift that is far from complete.

Second, 39% of China’s population—546,000,000 people—are still out there in the boonies, often in grinding poverty.

That leads to the second factoid:

Without a constant churn of new manufacturing and construction jobs, there's little hope left for hundreds of millions of Chinese citizens who left their villages to make money in the city. According to China's National Bureau of Statistics, 600 million people have barely $2,700 to spend a year. With housing prices in major cities soaring, what President Xi refers to as "The Chinese Dream" — the idea that even the poorest in the country would take part in China's rapid growth and modernization — is starting to look out of reach.

Note this. Although poverty is high in rural China, obviously $2,700 goes a lot further in the countryside than in the cities. Whatever the breakdown in average income is between rural and urban China, Lopez lets it be known that relative poverty for urban Chinese is a very real thing. And the Chinese Dream is starting look like not a real thing at all.

And it gets worse:

…, China is also facing an energy crisis fueled by skyrocketing coal prices as well as a working-age population that is getting old without enough resources to retire on.

Not only that, but thanks to the One Child Policy these hundreds of millions of hopeless prospective retirees will not be able to count on children to provide the security that the CCP cannot.

Lopez goes through all the ins and outs of the Chinese economy, but this is pretty much the bottom line:

In the face of all of these obstacles, Beijing has made a dubious choice. Instead of continuing to open the economy to spur growth, the Chinese Communist Party is closing it. Under President Xi Jinping, Chinese socialism is reverting to a model not seen in decades, with tighter state control over much of the economy. That's why you're seeing Beijing cancel massive IPOs and level entire industries. Economists expect this ideological shift to slow growth even more, which in turn would make China's attempts to transform its economy that much more precarious.

…

The transition from open markets to state control won't be easy to manage, and there's much at stake — for all of us. If Beijing fails at its ambitious plan, it could set off shock waves that would crater the global financial system, slow trade, and devastate businesses worldwide. The resulting chaos, and the crisis of faith in the CCP that would accompany it, could lead to social instability in China, spurring the central government to place an even tighter grip on civil society.

In short, Beijing is walking an economic high-wire act, trying to replace its economic model with something unknown. In the process, the weight of its old, debt-ridden system is causing China to wobble. And if the country falls, it could take the rest of the world with it.

What do you think the prospects for Xi’s success in this excellent adventure in uncharted economic waters are? If you read the the entire article the whole thing looks even more daunting than I’ve described. The impression I certainly got was that it’s not really a question of somehow muddling through. It’s more that everything has to work together perfectly to somehow avoid utter catastrophe.

It’s a big deal.