Thursday, July 18, 2024
HomeInternationalChina's Economic Renaissance: A Mirage in the Investment Desert?

China’s Economic Renaissance: A Mirage in the Investment Desert?

The grand vision for China’s economic recovery seems to be headed for a fiasco, as the nation’s leadership might hit the pause button on their plans to de-emphasize their investment-centric approach, the buzz among think tank gurus suggest.

Zongyuan Zoe Liu and Benn Steil, scholars associated with significant think tanks, have recently put forth a cogent argument highlighting President Xi Jinping’s big-picture blueprint for the Chinese economy. This comes in the context of China’s bid to step away from its stringent zero-COVID policies and slowly reopen its doors to the world.

Rewind to last year when the Chinese authorities unveiled a bold 12-year strategy. The idea? Pivot the economic driving seat to household consumption, gradually reducing the current heavy reliance on investment. This scheme attracted a round of applause from several economists, seeing that household spending contributes merely 38% to China’s GDP, considerably lagging behind the global average of 68%. Conversely, the role of investment in China’s economy holds sway at 43%, roughly doubling the long-standing US average of 22%.

Despite the plan’s apparent wisdom, the economists argue, the bid for consumption-led growth under Xi’s watch is set to be a non-starter. Drawing from past patterns, Xi will likely step back from the policy once the inevitable resistance emerges from influential groups like state-owned enterprises, local governments, and the national security bureaucracy, predict Liu and Steil.

Indeed, Beijing seems to be reverting to its tried-and-true strategies to bolster growth, thereby potentially steering the country towards greater debt, the duo asserts.

Government officials have already intervened to safeguard pivotal economic sectors and aren’t expected to lean on households to fuel spending in these areas, note Liu and Steil.

But this swing towards consumption-led growth isn’t just destined to ruffle a few feathers among high-powered entities. The repercussions could ripple out to touch various stakeholders.

“After years of basking in the glow of aggressive, nationwide, infrastructure-led urban growth, the central government is likely to face backlash from unpaid municipal workers, the businesses they patronize, and the vocal netizens rallying behind them on social media,” Liu and Steil suggest.

With China’s economic rebound so far falling short of expectations, expert voices have begun to caution about a potential pitfall. The anticipated post-reopening economic surge, as one expert puts it, seems to be more of an illusion than a reality. The shifting sands of investor sentiment echo this sentiment, with capital outflows from China accelerating as investor confidence in its grand economic reopening wavers.

In sum, the dragon might have to rethink its economic flight path if it’s to avoid a nose dive into a desert of unfulfilled investment dreams.