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China’s economic recovery is ‘doomed to fail’ as Beijing shifts away from investment, think tank experts say

by Index Investing News
June 29, 2023
in World
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Chinese President Xi JinpingJohannes Eisele/AFP/Getty Images

  • China’s economic recovery is practically doomed, experts from the Council of Foreign Relations said in an op-ed.

  • The Chinese government has launched a plan for consumption-led growth, meaning the nation will shift away from investment.

  • But that’s likely to ispark intense backlash, experts warned.

China’s economic recovery is doomed, as President Xi Jinping will likely abandon his plan to shift the economy away from its reliance on investment, according to think tank experts.

In a op-ed for Foreign Affairs published Thursday, Zongyuan Zoe Liu, a fellow at the Council on Foreign Relations, and Benn Steil, the director of international economics at the New York-based think-tank, pointed to Xi’s overarching plan for China’s economy as the nation reopens and dials back its zero-COVID policies.

Late last year, the Chinese government announced an ambitious 12-year plan that involves expanding household consumption to drive the economy, shifting away from investment over the long term.

That plan was met with an outpouring of praise from some economists, as China’s household spending accounts for just 38% of its GDP, well below the global average of 68%. Meanwhile, 43% of China’s economy is driven by investment – about double the US’s long-run average of 22%.

“Sensible though it is, consumption-led growth in Xi’s China is doomed fo fail. As Xi has done so often in the past, he will back away from the policy once the inevitable backlash from powerful constituencies, including state-owned enterprises, local governments, and the national security bureaucracy, takes hold,” Liu and Steil said.

Beijing already appears to be going back to its old playbook to boost growth, which will land China in more debt, they added.

Officials have stepped in to prop up key sectors of its economy, and are unlikely to depend on households to ramp up spending in those areas, Liu and Steil said.

Consumption-led growth is likely to upset key constituents as well.

“After years of claiming credit for robust, nationwide, building-bloated urban growth, the central government will not escape the ire of unpaid municipal workers, the businesses catering to them, and the netizens supporting them on social media,” Liu and Steil said.

Experts have warned of trouble for China’s economy as it sees a so-far disappointing economic rebound. The notion that the country would see a reopening boom has been a charade, one expert said. Investors, meanwhile, have pulled their cash out of China at a faster pace as they lose faith in its grand economic reopening.

Read the original article on Business Insider



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Tags: BeijingChinasdoomedeconomicExpertsFailInvestmentrecoveryshiftstank
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