Just one day after Beijing ended its zero-
policy, and immediately following a meeting with leaders of the World Bank and the International Monetary Fund, Li Keqiang, a top official for the Chinese Communist Party, told reporters that
would welcome foreign investments and promote an institutional opening-up.
That message was echoed by Chinese Ambassador to the United States
in an article titled “How China Sees the World,” published in the National Interest on Dec. 27. Qin assured readers, “China’s development means a stronger force for peace, not a growing power poised to ‘break the status quo,’ as some call it.” The ambassador also warned that “if people choose to see the world from a ‘democracy vs. authoritarianism’ perspective, they will be ushering in a world of division, competition, and conflict” — whereas “if they view the world as a community with a shared future, then openness, cooperation, and win-win outcomes will be the fruits of their choice.”
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This advocacy for openness and cooperation stands in stark contrast with what Chinese leader
and his diplomats had exhibited just weeks ago. What would prompt such an abrupt change in position? The answer is simple: China’s economy is in big trouble.
With China’s 2022 GDP at just 3.2%, well below the projected 5.5%, elite financial institutes are adjusting their forecasts for the Chinese economy. Goldman Sachs has pushed back its projection that China’s GDP will overtake that of the U.S. until 2035. The Japan Center for Economic Research, which previously predicted that China would become a world leader between 2028 and 2033, now says that won’t happen for several decades.
Further evidence of China’s grim economic prospects can be found in the Central Economic Work Conference, a meeting summarizing the state of China’s economy and establishing the priorities for economic efforts in 2023. According to the briefing, the biggest challenge for China’s economy, beyond balancing epidemic prevention and control with economic development, is the lack of domestic demand. While domestic demand involves both consumption and investment, China’s challenges stem from low consumption. From 2018 to 2021, China’s consumption percentage in GDP has stalled at roughly 55%, significantly lower than America’s consumption, which has risen to over 80%.
While Xi’s zero-COVID approach and continued fear of infection have contributed to this decrease in consumption, the core of the problem is the wealth structure of the Chinese people. One of China’s renowned financial think-tank platforms, the China Finance 40 Forum, recently released its 2022 Jingshan Report, which revealed that while the top 10% of the Chinese population’s net wealth accounts for 68% of the total wealth, the bottom 50% account for just 6.3% of total wealth. What this means is that half of the country lacks the wealth necessary to purchase anything more than basic needs, with many lacking even that. As Li said at a National People’s Congress press conference on May 28, China has “600 million people whose average monthly income is only about 1,000 yuan,” or roughly $145. That problem is made larger by the fact that Li’s statistic only reflects those who have a regular income and are registered in the government’s system. Many of those in rural areas do not have regular incomes and so are not counted in this figure.
In the face of low consumption, China resorts to old ways of increasing GDP: investments. In the past, these investments focused on infrastructure and real estate development. But with the real estate sector sinking and infrastructure in excess, China is now shifting the focus of these investments to the high-tech, digital, and new
industries. This shift will require time, and the West’s technology, to implement. But the current tenor of the relationship between the West and China is likely to lead to embargoes on necessary technologies and an end to foreign capital, both of which would severely hamper China’s high-tech development. China also needs the West to sustain its manufacturing exports, a sector earning real money and generating meaningful profits compared to investments in infrastructure and real estate.
In short, China’s recent economic downturn has left Xi with no choice but to turn once again to the export market, a sector earning real money and generating meaningful profits. Manufacturing exports are the lifeblood of the Chinese economy, which is why even though domestic demand is low, Xi is once again signaling a willingness to open the country up to the outside world after the termination of zero-COVID.
The question for the U.S. and the rest of the West is whether Xi’s gesture should be welcomed. Some might argue that if the Chinese Communist Party could become more open and tolerant, stabilizing its rule might be possible. But I would argue that we must learn from history and stop connecting the CCP’s economic reform and its decision to open up with a move toward freedom and democracy. We need to see instead that it is merely a stopgap measure in the midst of a crisis. Xi is simply repeating what the CCP has done long before his tenure. That is, when the party faces a crisis it can’t build or land-tax its way out of, it makes a gesture of reform and cooperation as a way to gain Western support in its time of need. And when China’s economy or society stabilizes, its position often reverts.
Leaders of the free world have long overlooked the core motivations of the CCP. Even former Presidents Richard Nixon and Ronald Reagan chose instead to focus on the possibility that partnering with China might help them effectively deal with the Soviet Union. They saw possibility more than probability and gave China substantial help in many areas, including technology, management, funding, and even defense. That help continued until 1989, when a massive pro-democracy movement took hold in China and the Chinese people demanded real political reforms that had been touted by the government in its rhetoric. Deng Xiaoping, the leader of the CCP at the time, responded not by embracing that wish but by stifling it, which led to the massacre at Tiananmen Square.
After Tiananmen, China reverted back to being a closed-door state for a time. This led to a rapid decline in China’s economy and a renewed crisis for the Chinese Communist Party. Deng was keenly aware of that crisis and knew changes were needed again. As Deng toured southern China in 1992, he
upon his audience a blunt
: “If China does not practice socialism, does not carry on with ‘reform and opening’ and economic development, does not improve the people’s standard of living, then no matter what direction we go, it will be a dead end.”
Once again, Deng’s words struck a chord of possibility with the West. President George H.W. Bush swiftly lifted sanctions against China with President
following suit, reversing his previous anti-communist attitude and becoming a primary supporter of the engagement policy. The rest is history. China eventually became America’s biggest rival.
There is little difference between Xi and Deng in their motivations and intentions. Their collective intent is to maintain Communist Party rule at all costs. As one might expect, CCP leaders are unanimous on this point. Despite the random and inconsistent nature of reforms in China over the past 40 years, the motivation behind those reforms has been constant: to secure Communist Party rule. Although the party leadership seems to be courting Western connections, we need to look at China’s social and economic contexts and see that those conversations come from need and crisis. Once China’s economic condition improves and the Communist Party’s rule is again secure, that approach is likely to change abruptly.
We should not allow our American idealism, and the hope that China will become democratic if it engages with the world economy, to overtake our understanding gained from the historical redirections taken by the country to its own benefit. China is now having yet another moment of crisis, its third in 40 years. Perhaps it is a bigger potential crisis than the one faced by Deng because it is a time when the growth dividend of an emerging economy, namely the population and urbanization dividend, is disappearing and China’s structural imbalances persist.
Should the West offer its assistance once again? The answer is no. Let China use its own resources and its own funding to restructure the nation, and let the quality and strength of our respective institutions determine America’s and China’s positions in the world.
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Simone Gao is a Chinese-born, award-winning journalist and the producer and host of Zooming In, an in-depth report program on current affairs.