Xi Jinping’s misguided plan to escape economic stagnation

China’s Economic Test and the Sustainable Development Goals (SDGs)

The Challenge

China is currently facing its gravest economic test since the most far-reaching of Deng Xiaoping’s reforms began in the 1990s. Despite achieving a growth rate of 5% last year, the country is experiencing significant challenges. Its workforce is shrinking, the property market is in decline, and the global system of free trade that once benefited China is falling apart. In response, President Xi Jinping has proposed an ambitious plan to reshape China’s economy, combining techno-utopianism, central planning, and a focus on security. However, this plan is riddled with contradictions that may disappoint the Chinese people and anger the rest of the world.

The Current Situation

Compared to a year ago, the mood in China is dour. While industrial production has shown some improvement in March, consumers are feeling depressed and deflation is a looming threat. Many entrepreneurs are disillusioned, and there are deeper fears about China’s vulnerabilities. The country is projected to lose 20% of its workforce by 2050, and the property industry, which drives a significant portion of GDP, is in crisis. Local governments that relied on land sales for revenue and real estate for growth are now facing financial difficulties. Relations with America remain fragile, with Chinese officials anticipating further restrictions on imports and penalties on Chinese firms, regardless of the outcome of the US presidential election.

The Strategy: “New Productive Forces”

China’s response to these challenges is a strategy centered around what officials call “new productive forces.” Instead of relying on consumer stimulus to revive the economy, President Xi aims to accelerate advanced manufacturing industries through state power. The goal is to create high-productivity jobs, achieve self-sufficiency, and secure China against American aggression. This plan envisions China dominating industries of the future, such as electric cars, batteries, biomanufacturing, and the drone-based “low-altitude economy.” The scale of this plan is immense, with annual investment in “new productive forces” reaching $1.6 trillion, equivalent to 43% of all business investment in America in 2023.

Flaws in the Plan

Despite its grand ambitions, President Xi’s plan is fundamentally misguided. One major flaw is its neglect of consumers, whose spending accounts for just 37% of GDP, much lower than global norms. Restoring consumer confidence and boosting spending requires stimulus measures and reforms that improve social security, healthcare, and access to public services for urban migrants. Another flaw is the reliance on weak domestic demand, which may necessitate exporting some of the new production. However, in a protectionist age, this approach faces significant challenges as the world has moved away from free trade. Finally, the plan overlooks the importance of entrepreneurs and the need for unshackled innovation. Many business leaders fear Mr. Xi’s unpredictable rule-making and are concerned about purges or even arrest. This has led to a decline in stock market valuations and capital flight.

The Potential Consequences

If China does not change course, it risks becoming trapped in a cycle of deflation and a property crash similar to Japan in the 1990s. Furthermore, its imbalanced growth model could disrupt international trade and escalate geopolitical tensions. The prioritization of national security over prosperity under Mr. Xi’s leadership marks a profound change from the past and will have far-reaching effects in China and around the world.

Conclusion

The current economic challenges facing China require a comprehensive and sustainable approach that aligns with the Sustainable Development Goals (SDGs). While President Xi’s plan to reshape China’s economy has ambitious goals, it falls short in addressing key issues such as consumer confidence, domestic demand, and the role of entrepreneurs. To achieve long-term economic stability and prosperity, China must prioritize the well-being of its people, foster innovation, and embrace global cooperation. By aligning its economic strategies with the SDGs, China can contribute to a more sustainable and inclusive global economy.

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 11: Sustainable Cities and Communities
• SDG 12: Responsible Consumption and Production
• SDG 13: Climate Action
• SDG 16: Peace, Justice, and Strong Institutions

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation
• Target 9.2: Promote inclusive and sustainable industrialization and foster innovation
• Target 11.3: Enhance inclusive and sustainable urbanization and capacity for participatory, integrated, and sustainable human settlement planning and management
• Target 12.2: Achieve sustainable management and efficient use of natural resources
• Target 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters
• Target 16.6: Develop effective, accountable, and transparent institutions at all levels

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

No specific indicators are mentioned or implied in the article that can be used to measure progress towards the identified targets.

4. SDGs, Targets, and Indicators

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Source: economist.com

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