Football provides a useful way to understand the dead end into which Xi Jinping is leading the Chinese economy. This month, a 7-0 loss by China’s men’s team to Japan in an Asian Cup qualifier marked the colossal failure of a decade-long multi-billion dollar project to turn China into a footballing superpower. When Xi launched his masterplan in 2015, China was 81st in the world; now they are 87th. Dozens of top officials and players have been suspended or jailed for corruption, and much like Xi’s dream of creating a tech-driven ‘innovation economy’, the plan to capture the heights of world football was a top-down project driven by diktat and wads of cash, with rigid plans and targets so beloved of Communist Party bureaucrats.
As with innovation, football success doesn’t work that way. It is more of a bottom-up endeavour, thriving in a more open and free-thinking environment, not one in which the Party wants to be in every boardroom, lab, classroom – and football field.
Xi has portrayed himself as ‘supreme reformer’, the heir to Deng Xiaoping, even though his principal achievement since coming to power in 2012 is to put Deng’s reforms sharply into reverse. The Chinese economy is in trouble, more so than is commonly understood. Growth continues to slow, the property bubble continues to burst, with slumping sales and prices, youth unemployment is soaring,and inward investment is plunging amid growing signs of social stress, including a spike in protests. Beijing has reacted by restricting data about the economy, which was in any case always suspect, and criminalising pessimism. The Ministry of State Security, China’s main spy agency, has declared that gloom about the economy is a foreign smear and that ‘false theories about “China’s deterioration” are being circulated to attack China’s unique socialist system’.
My new book, Vampire State: The Rise and Fall of the Chinese Economy, tries to make sense of an economy that remains addictive to some, but dangerous and surreal for others. It is not a ‘how to’ book on business in China, but tries to understand the predatory and at times bizarre nature of the economy – and the mind-bending experience of doing business with it. Rules and agreements mean little, markets are distorted, statistics fabricated, foreign industrial secrets and technology systematically stolen, while entrepreneurs who fall out of favour with the CCP routinely disappear. President Xi Jinping’s ambition of China becoming the world’s pre-eminent economic, technological and military power, which once seemed almost inevitable, is fading fast.
The model that has powered four decades of breakneck economic growth was reliant on cheap exports and wasteful state-led investment in property and infrastructure. It is no longer sustainable. It has led to soaring debt and diminishing returns, with China littered with ghost cities, containing 60 to 100 million empty or incomplete homes, while companies accounting for 40% of China’s home sales have defaulted. It is widely agreed that China needs to rebalance its economy, that consumers need to spend more, since private consumption accounts for just 39% of the economy – extremely low by world standards (the figure in the US is 68%). But there is no consumer confidence, with 80% of family wealth tied up in property and no meaningful social safety net.
Xi hopes renewable energy tech can replace property as a new motor of growth, and mouth-watering subsidies have been thrown at industries ranging from solar panels to electric vehicles (EVs) and batteries, leading to massive over-capacity and vicious price wars. Yet the benign global environment that accompanied China’s earlier export splurges has gone; the world is much more wary, and both the US and EU have imposed hefty tariffs on Chinese EVs and solar panels they allege are being dumped at below cost. Xi’s longer term goal is to build a world-beating ‘innovation’ economy driven by domestic tech, but the most effective way of achieving this – giving more sway to the market and to private companies – runs counter to everything he stands for. He has hobbled China’s most innovative technology companies, which have faced tightening restrictions. Last year, China led the world in the number of millionaires leaving the country, according to the Henley Wealth Management Report.
China has never provided a level playing field for foreign business, but under Xi, the environment has become increasingly hostile. Last year, direct foreign investment into China fell to a 23-year-low. In Western boardrooms, once so bewitched with capturing a share of the mythical China market that they would put normally rational decision-making aside and suffer almost any indignity, ‘resilience’ has become the watchword. The Ukraine war has exposed the danger of over dependence on autocrats with hostile ambitions.
This is the background against which the new British government is trying to craft a coherent China policy, uttering the familiar mantra of balancing security and human rights concerns against Britain’s economic and trade interests. However, this is a false dichotomy. The CCP routinely uses trade, investment and market access as means of coercion. This was demonstrated in June when the China’s consul-general in Edinburgh leant on local business, who in turn pressured the city council into shelving plans for a new ‘friendship arrangement’ with the Taiwanese city of Kaohsiung. Coercion is a fact of business life with China, and this needs to be recognised. A better starting point is to focus on the dangers of overdependence in critical areas and the need to stand up to bullying. Furthermore, there needs to be a recognition that Xi’s priority is security and control above all else – including the economy. China’s troubled economy has peaked and may go sharply into reverse. It is certainly unreformable as long as Xi Jinping remains in charge.
Ian Williams’ book ‘Vampire State: The Rise and Fall of the Chinese Economy’ can be purchased here.
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