China: Health, Economic, Geopolitical Crises, Xi Jinping’s Deadlocks

The Chinese economy is a wonderful testimony to the speed at which the world can change today. By contrast, the big winner of the Covid crisis in 2020, Beijing, appears to have experienced unparalleled instability in 2022 since Xi Jinping came to power. At the root of this sudden reversal of the situation are four simultaneous denials on the part of the government, leading to four crises: health, geopolitics, real estate and economic.

First, the denial of the ineffectiveness of Chinese vaccines against Covid-19. Even today, the refusal to approve the BioNTech technology, although licensed from the Fosun group in China, keeps the government adhering to its sterile “zero Covid” policy. Repeated incarcerations are now proving all the more untenable as they disrupt nearly half of China’s GDP, only to identify a few cases with more than 90% asymptomatic. In doing so, they enable the United States to regain its dual status as a locomotive of global growth and a planetary health leader.

Then the denial, during the Ukrainian crisis, of the so-called sacred principle of respecting borders. It is 141 countries, among the members of the United Nations, that have recalled their deep-rooted attachment to this fundamental right – when China refrained from taking sides. These 141 countries will no doubt have some future questions before approving Chinese efforts to bring about a reglobalization of the world, especially aimed at the de-west of the planet.

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Beijing will therefore sooner or later have to prepare for the incompatibility between its “unlimited friendship” for Vladimir Putin’s war crimes and its 700 billion trade surplus, mainly made in the West. What has been threatening the main source of growth for the Chinese economy for more than a year: exports to Europe and the United States, constantly tempted by new sanctions.

State attacks on the private sector

Added to this is the denial of the real estate crisis, where the arrogance of regulators has allowed it to go beyond the initially isolated case of the Evergrande group, to now nearly 35 promoters have been suspended from the Hong Kong Stock Exchange, in the extension of the resignation of their audience. What remains to be done after the failure of the camouflage attempt, due to a merger with state actors? Beijing could opt for the “claim and extend” solution and try to spread the expected losses of about 10% of GDP over the next decade by setting up land companies. This would wipe out any future Chinese economic growth.

Finally, the denial of the benefits of the private sector. While it is creating all the new jobs, for nearly nine months it has not ceased to suffer from all the onslaught of state regulation, in areas well beyond education, video games, health or finance.

The recent announcement by the Alibaba group of an impressive $25 billion share buy-back program will have further alarmed investors. Rather, they saw it as a desperate way to escape future government ransoms and understood that investments in artificial intelligence — a key sector for increasing Chinese industry’s value-added — would fail to deliver on its promises.

The hope of taking into account economic instability

However, China’s history teaches us that these phases of persistent denial always come to an end, as promised in mid-March by the highly realistic Vice Prime Minister in charge of the economy, Liu He – arguably the most respected current Chinese leader in the world. the West. Indeed, the sudden acceleration of the collapse of the Chinese stock markets had prompted him to announce his support for the economy publicly and with utmost urgency. Words that have remained to this day without concrete measures.

However, the deadline for the election of President Xi Jinping for his third term next fall gives hope that the worrisome current instability in the economy will soon be taken into account. With the key, the relative easing of health concerns, the temporary easing of diplomatic tensions with the United States, the organized support of the real estate sector and the necessary resumption of private sector financing. Enough to enable Liu He temporarily, far from denial and stubbornness, nearly half a century apart, to put on “Comrade Deng Xiaoping’s new clothes”.

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David Baverez is an investor, based in Hong Kong for ten years. He is the author of China-Europe: the great turning point (Le Passeur Publishers, 2021).


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