China has long been touted as the next country to challenge the supremacy of the United States on the world stage, and in recent years many Americans have felt a growing sense of inevitability in the "Sleeping Dragon's" rise to the position of dominant world power.
However, not all experts and policy makers are convinced that China can sustain its remarkable growth. Although the country boasts a population of more than 1.4 billion and commands a whopping 18.6% share of global GDP, cracks have begun to emerge in China's economic model that have caused many analysts to sit up and take notice.
Zero-Covid Policy
Much of China's problems can be traced to the its "zero-covid" policy, which used strict border controls, mandatory quarantines, mass testing, and sudden lockdowns to eliminate any form of disease transmission during the pandemic.
Although the country achieved some success in the early days of Covid-19, the Omicron variant has spread rapidly across China's population and put a dent in the "zero-covid" blueprint.
By mid-May, China had placed more than 30 cities under full or partial lockdown, impacting up to 220 million people nationwide.
Shanghai
In recent days, observers have compared China's efforts to eliminate Covid to a military campaign, with Shanghai bearing the brunt of the policy.
The city, known as China's business hub, has seen planes offloading personnel and supplies, tens of thousands of medical workers marching through, and Covid patients whisked away to field hospitals.
The majority of the city’s 25 million residents have remained locked down for days on end, leading to an economic standstill.
Worrying Signs
The lockdowns seem to finally be catching up to China's economy.
On Thursday, May 26, China’s state-run Global Times reported on an “unprecedented national video teleconference on stabilizing the economy” that featured over over 100,000 participants.
Held by the State Council of the Communist government, the meeting covered a number of different topics, from extending value-added tax-credit refunds to more industries, to a government proposal to urgently launch a new round of rural road construction to give jobs to unemployed people.
While the Chinese Communist Party's rushed economic call was in itself strange, what made headlines was a report filed by Bloomberg News shortly after that spoke of “rising anxiety from within China’s government about the impact of its Covid Zero policy on the economy.”
Bloomberg also cited “people familiar with the matter” who said Chinese Premier Li Keqiang warned teleconference attendees that “growth risks slipping out of a reasonable range.”
Economic Pressure
Taken by itself, Li's comments would not be a cause for significant alarm. However, the Premier's statements come on the heels of a number of damaging reports, such as the default of Evergrande, a massive Chinese property developer, which was attributed to a debt bubble in the country’s real estate sector.
Russia’s invasion of Ukraine has also pushed up global prices of food, energy, and other commodities imported by China, putting further stress on the country's economy.
To deal with the rising prices and economic hardship, General Secretary Xi Xinpeng ratified a package of economic initiatives known as the “new development concept." While the program's goals include fighting inequality and monopolies, as well as fortifying China against Western sanctions, many analysts believe the policy has exacerbated existing problems.
In a scathing piece published after the virtual conference, The Economist attributed Xi's "ideological struggle to remake state capitalism" as one of the driving forces of the dismal economy. The publication also said his policies are “expanding the scope of the least productive part of the economy: the government-run one."
As a result of China's slump, the International Monetary Fund recently lowered its forecast for China’s economic growth to 4.4 % this year, which by Chinese standards is extremely low. Bloomberg Economics, struck a similar tone, predicting as little as 2 growth - a figure that means the U.S. will grow faster than China for the first time since 1976.
Growing Protests
Although Xi's control seems complete, there are signs that discontent is growing amidst China's population. Last week, students off Tianjin University took to the streets to protest against local authorities.
A particularly large demonstration took place on May 26 where student protestors raised anti-administration slogans such as “Down with formalism, Down with bureaucratism."
The students' main concerns centered on rising prices for food and other consumer products due coronavirus restrictions, as well as burdensome procedures for obtaining permission to leave their university campus.
Effect on the Rest of the World
China's policies have left hundreds of cargo ships stranded in the ports which will only lead to higher freight costs and a slower supply chain.
Maersk, the world’s second-largest shipping company, said that the lockdowns will severely impact truck services and transport costs as 90% of the world's goods are shipped oversea.
Higher freight charges means that companies will offset the cost by charging consumers higher prices. And in the United States, average Americans are at risk given the high degree of economic integration between the two countries.
Despite inflation, Americans continue to consume goods from China at a record pace, meaning that there will be no let off for Chinese manufacturers in their efforts to hit their daily quota.
So far, many companies have been forced to suspend business operations in China, including automakers Tesla and Volkswagen. Airbnb has also pulled out of the Chinese market, with the company announcing this past week that it would shut down its listings in the country.
