End of China's Golden Age Risks Political Peril for Xi

Summary

The Chinese economy is facing significant challenges, including a real estate collapse and a trade war with the US. This situation presents unique difficulties for economic officials and President Xi Jinping. Real disposable income growth has slowed under Xi, reaching levels not seen since the late 1980s. A comparison of GDP growth and social freedoms shows a decline in both areas since Xi's tenure. Economic protests, driven by issues like unpaid wages and property pressures, are rising. Interviews with various individuals reveal widespread economic struggles and a growing sense of frugality among the populace.

Takeaways

• 📉 The Chinese economy has faced significant challenges, including a real estate collapse and a trade war with the US.
• 🤔 President Xi Jinping cannot rely on economic strength to maintain support, unlike his predecessors.
• 📈 Real disposable income growth in China has slowed to the lowest rate since the late 1980s under Xi Jinping.
• 🏠 The property crisis is severely impacting household wealth.
• 📊 An analysis of IMF GDP growth data and freedom metrics shows a correlation between economic growth and social freedoms over the past 40 years.
• 🕵️‍♂️ During the Mao Zedong era, both economic growth and freedoms were very constrained.
• 🌱 Economic and social freedoms expanded significantly under Deng Xiaoping's reform and opening-up policies.
• 📉 Growth began to slow and social freedoms started to erode under Hu Jintao.
• 🔄 Under Xi Jinping, China has seen a return to constrained freedoms and slower economic growth, similar to the Mao Zedong era.
• 🔍 Despite higher living standards under Xi, the reduction in freedoms reflects Beijing's response to post-boom challenges.
• 📊 80% of protests in China last year were related to economic issues, such as unpaid wages and property pressures.
• 🗣️ Interviews with individuals across different income levels revealed widespread economic challenges and disillusionment.
• 📉 Many businesses and individuals are struggling with debt and uncertainty, affecting their economic decisions.
• 🧩 The social contract of delivering growth for stability is being questioned as economic protests rise.
• 📉 Political scientists refer to this as 'performance legitimacy,' where economic prosperity underpins the legitimacy of the Communist Party.

Q & A

What are the main economic challenges currently facing China?

China is facing several economic challenges, including a real estate collapse and a trade war with the US.

How has the growth of real disposable income in China changed over time?

The growth of real disposable income has slowed under President Xi Jinping, reaching the slowest rate since the late 1980s.

What datasets were used in the analysis presented by Rebecca Chan Wilkins?

The analysis used the IMF dataset on Chinese GDP growth and various metrics from the Varieties of Democracy project on social freedoms.

How did social freedoms and economic growth evolve in China from the Mao Zedong era to the present?

Under Mao Zedong, both social freedoms and economic growth were very constrained. During Deng Xiaoping's era of reform and opening up, both freedoms and growth expanded significantly. This trend continued under Jiang Zemin but began to slow under Hu Jintao. Under Xi Jinping, growth has slowed further and social freedoms have become more constrained.

What does the data from Freedom House in China indicate about the nature of protests in 2023?

The data shows that 80% of protests in China in 2023 were linked to economic issues such as livelihood, unpaid wages, and property pressures.

What was the experience of Mr. Wang, a commodity trader, during the economic challenges in China?

Mr. Wang initially experienced boom years leading up to COVID-19, during which he bought a Tesla Model X and a pricey apartment. However, the last few years have been tougher, with razor-thin profit margins and factories hesitant to lock in long-term contracts due to uncertain demand.

How has the economic downturn affected personal decisions among the Chinese populace?

People are canceling or postponing major life decisions, such as having children, due to economic uncertainty and financial strain.

What is the concept of 'performance legitimacy' in the context of Chinese politics?

Performance legitimacy refers to the idea that the legitimacy of the Chinese Communist Party is underpinned by its ability to deliver economic growth and prosperity, ensuring social stability.

Are the economic protests in China coordinated or widespread?

No, the economic protests are not coordinated or nationwide. They are limited and sporadic in nature.

What is the overall sentiment among people in China regarding the future economic outlook?

There is a sense of disillusionment and concern among people, with many preparing for a tougher era of frugality ahead.

Outlines

00:00

📉 Challenges Facing the Chinese Economy

The Chinese economy is facing significant challenges, including a real estate collapse and a trade war with the US. These issues are creating unique problems for economic officials and President Xi Jinping, who cannot rely on economic strength to maintain support. Real disposable income growth has been slowest since the late 1980s under Xi, despite incomes continuing to rise. The property crisis is also impacting household wealth. Rebecca Chan Wilkins, the Asian government and economy correspondent, provides more context on this issue.

05:03

📊 Analysis of Freedom and Economic Growth in China

Rebecca Chan Wilkins discusses the relationship between economic growth and social freedoms in China over the past 40 years, using datasets from the IMF and varieties of democracy. During the Mao Zedong era, both growth and freedoms were constrained. Under Deng Xiaoping, economic growth and social freedoms expanded significantly. This trend continued under Jiang Zemin but started to reverse under Hu Jintao, with growth slowing and social freedoms declining. Under Xi Jinping, China has almost returned to the constrained conditions of the Mao era, although living standards are higher. The current situation reflects Beijing's approach to the post-boom era.

Keywords

💡Chinese economy

The Chinese economy refers to the economic activities and performance of China, one of the world's largest and most influential economies. In the video, it is discussed in the context of facing significant challenges, including a real estate collapse and a trade war with the US, affecting growth and stability.

💡Real estate collapse

A real estate collapse is a significant downturn in the real estate market, characterized by falling property prices and decreased investment. The video mentions this collapse as a major blow to the Chinese economy, impacting household wealth and overall economic stability.

💡Trade war

A trade war involves countries imposing tariffs or other trade barriers on each other in response to trade disputes. The video highlights the trade war between China and the US as a contributing factor to the economic challenges faced by China, affecting international trade and economic growth.

💡Xi Jinping

Xi Jinping is the current President of China and General Secretary of the Chinese Communist Party. The video discusses how, unlike his predecessors, Xi cannot rely solely on economic strength to maintain support, given the recent economic challenges and slower growth rates under his leadership.

💡Disposable income growth

Disposable income growth refers to the increase in the amount of money individuals have available to spend after taxes. The video shows that while incomes in China are still rising, the rate of growth has slowed significantly under Xi Jinping, compared to previous decades.

💡Property crisis

The property crisis in China refers to the severe problems in the real estate market, including falling property values and financial instability among developers. This crisis is mentioned as a factor that is negatively impacting household wealth and contributing to broader economic difficulties.

💡IMF dataset on Chinese GDP growth

The IMF dataset on Chinese GDP growth tracks the annual growth rate of China's gross domestic product. The video references this dataset to illustrate changes in China's economic performance over time, showing periods of rapid growth and recent slowdowns.

💡Social freedoms

Social freedoms refer to the rights and liberties that allow individuals to participate freely in society, such as freedom of expression and association. The video discusses the correlation between economic growth and social freedoms in China, noting a decline in these freedoms under Xi Jinping.

💡Performance legitimacy

Performance legitimacy is the concept that a government's legitimacy is based on its ability to deliver economic prosperity and improve living standards. The video explores this idea in the context of China, suggesting that economic challenges are testing the social contract between the government and the people.

💡Freedom House

Freedom House is an organization that conducts research and advocacy on democracy, political freedom, and human rights. The video cites data from Freedom House's China Dissent Monitor, which tracks protests and unrest, indicating that a significant proportion of protests in China are related to economic issues.

Highlights

The Chinese economy has been hit by a series of blows, including a real estate collapse and a trade war with the US.

Chinese President Xi Jinping cannot bank on economic strength to underpin support.

Real disposable income growth under Xi has been the slowest since the late 1980s.

The property crisis is hammering household wealth.

The IMF dataset on Chinese GDP growth and data metrics on freedoms show a striking picture of how freedom and growth have evolved in China over the past 40 years.

Under Deng Xiaoping, growth started to expand significantly, along with social freedoms.

Under Xi Jinping, China has almost come full circle as growth slows and Beijing clamps down on social freedoms.

The base level of living standards for Chinese people is much higher under President Xi.

80% of protests in China last year were linked to economic issues such as unpaid wages and property pressures.

Rebecca Chan Wilkins spoke to a wide range of people from mutual fund managers to window cleaners.

Commodity trader Mr. Wang, who had been optimistic during the boom years, now faces tougher times and razor-thin margins.

Factories are worried about locking in long-term contracts due to uncertain demand exports, affecting traders like Mr. Wang.

The social contract in China, which is based on delivering growth and prosperity for stability, is being questioned.

Performance legitimacy has underpinned the legitimacy of the Chinese Communist Party by promising a better life.

There are more incidents of economic protest, although they are limited and sporadic.

Transcripts

The Chinese economy has been hit by a series of blows, including a real estate

collapse and a trade war with the US. Now, this is certainly presenting a

fairly unique problem to economic officials and to Chinese President Xi

Jinping, who really, unlike his successors or predecessors,

cannot bank on economic strength to underpin support.

Now, this chart coming up on your screen shortly shows that real disposable

income growth, this is growth, not absolute numbers from 1978 up until last

year as we pan show that incomes are still rising.

But under Xi, gains have actually been at the slowest since the late 1980s.

It's a function of a growing and mature economy.

Question mark The property crisis is also hammering household wealth.

For more context on our big take today, our Asian government and economy

correspondent Rebecca Chan Wilkins has been looking into this and joins us

right now. Rebecca

Thank you, David. So for this story, we looked at these

two big datasets, the IMF dataset on Chinese GDP growth that is across the

horizontal line. And we also looked at data metrics, a

variety from varieties of democracy on freedoms.

So things like press freedom, academic freedom, so on, which is the vertical

line up here. And essentially we looked at how this

changed over time. And when you overlay these two datasets,

you see quite a striking picture of how freedom and growth has evolved in China

over the past 40 years. So if we come to the Mao Zedong era just

before the Reform era of opening up begins, you can see we end up in this

place over here where freedom is really quite constrained.

Growth is really very weak as well. But as we move into reform and opening

up under Deng Xiaoping, you can see that growth starts to expand in quite a big

way. And as growth expands, we also see here

the expansion of freedoms, social freedoms.

Now, under Jiang Zemin, these levels stay roughly the same.

So you can see this trajectory on the blue line here under Hu Jintao, we then

start to see the beginnings of a slowdown in growth and the erosion of

some social freedoms. So the line coming down just a little

bit here. Now, if we fast forward to 2023 on this,

Xi Jinping, we see that China has come almost full circle as growth slows and

Beijing clamps down on social freedoms. So this is where we here, right in 2023,

almost very close to the levels here where Mao Zedong finishes and ends his

era. Now, of course, it's important to say

that the base level of living standards for Chinese people is much higher under

President Xi. But this return to constrained freedoms

also tells us something about how Beijing is handling the challenges of

this post boom era. Yeah, in fact, we also have some numbers

on this too, Rebecca. You know, speaking of economic

constraints and also social freedoms, right?

So we have data here showing that 80% of protests in China last year were

actually linked to economic issues rights, livelihood, unpaid wages,

property pressures, two known challenges there as well.

These are figures, by the way, from the Freedom House in China.

This is the dissent monitor. As you can see, 80% are because of

economic issues. Now, Rebecca, you've spoken to a lot of

people for this story, obviously. Who are they, first of all, and what did

they say? So we spoke to really people across up

and down the income ladder, everyone from mutual fund managers, commodity

traders, entrepreneurs, but also window cleaners, people who are taking on extra

work, as did drivers on the weekend and so on.

But one story that sort of struck me was Mr.

Wang. He's a commodity trader who struck out

on his own a few years ago when his province loosened rules around trading

energy. And he was originally very optimistic.

He sort of had these boom years in the lead up to Covid.

He bought a Tesla model X, He bought a really expensive apartment in the trendy

Nanshan area in Shenzhen. But the last few years, he say, have

been even tougher than in Covid. He talked about his friends deciding to

cancel or postpone changes decisions to have children.

For example, he talks about his friends in other business getting trapped in

this cycle of debt and not being able to manage their debt loads as well.

And for him, particularly factories that he sells energy to are worried about

locking in these long term contracts because they don't know the prospects of

that demand exports. So margins for him are down to

negotiating for 0.001 kilowatt per hour. That was a sort of incredibly thin,

razor thin margins when it comes to negotiating these deals.

No margin for error. Exactly.

Quite literally. Yeah, right.

This brings up the big sort of question and the social contract.

Right. Deliver growth, deliver prosperity

and things will remain stable. For example, is is.

That is that social contract is something to be questioned at this

point. Yeah, I think this has always been the

debate. Political scientists sort of sometimes

talk about this is performance legitimacy, essentially this idea that

the promise of a better life, these improved improvements in wealth and so

on, have underpinned the legitimacy of the Chinese Communist Party for a long

time. Now, that certainly isn't beginning to

collapse, is not we're not seeing a breakdown in that exchange, although we

do see more of these incidents of economic protest.

They are not sort of coordinated or nationwide.

They're quite limited, sporadic in nature.

But we are sort of seeing some of those signs start to fray and we get that a

little bit in some of the some disillusionment from people that we

spoke to on the ground and is concerned that they are sort of hedging their

heels in preparing for a tougher era of frugality ahead.