Elon Musk expects the Chinese economy not just to overtake that of the USA but to dwarf it. Musk was recently quoted as saying: “What we are going to see with China is an economy that’s twice the size of the U.S., possibly three times the size of the U.S.” The statistics suggest Musk is correct. “Last year, the Chinese economy skyrocketed 8.1%, producing $17.46 trillion in gross domestic product. The American economy clocked in at $23.00 trillion, growing only 5.7%.”
Gordon Chang disagrees. He observes “a series of inflection points”.
Inflection point #1 is China’s demographic crisis. “The Chinese population is on track for a steep decline… According to demographers from Xian Jiaotong University, China is slated to lose half its population in 45 years. The country faces the sharpest demographic decline in history in the absence of war or disease. Efforts to avoid the decline — moving from a one-child policy in 2015 to a three-child policy in 2021 — have proven unsuccessful in increasing birth rates.”
Inflection point #2 is the economy. “Lockdowns, the result of Beijing’s zero-Covid policy, have essentially brought much of the eastern portion of the country, the heart of the national economy, to a halt. China’s ports and airports are operating at far below capacity, and river and truck traffic is way down, about 40% off. Factories are either closed or struggling. Now, because of a lack of parts, the economy is running at only 45% of capacity.”
Inflection point #3 is “China’s unprecedented buildup of debt. Nobody knows how much debt China has accumulated, but an estimate of 350% of annual gross domestic product sounds about right.”
Inflection point #4 is the property sector. “Property developers have been missing payments and defaulting on obligations. Evergrande Group, once China’s largest property developer, accumulated a staggering $305 billion in obligations and is struggling, even with full government backing.” Around 70% of the household wealth of the Chinese people is tied up in property.
In May 2022 Chinese Premier Li Keqiang hosted an emergency teleconference led by the State Council leadership and attended by leadership from the central bank, finance ministry, the country's chief macro-economic planner and over 170,000 local government officials, where Li conceded that China’s economy is stalling at a dangerous rate and faces critical risks. Li instructed this army of officials from across the country to exhaust all measures to stabilise the economy. Stratfor commented that “the effects will be limited as long as General Secretary Xi Jinping prioritises China's "Zero COVID" pandemic management strategy. This forces the officials to make a choice, or at least to deal with a situation where they will find it hard “to obey both Li and Xi”.
Many others, like Elon Musk, argue that most, if not all, of this is simply temporary, a result of the Covid situation. They are confident that China's several decades-long economic growth will continue, before long recovering to overtake the USA's economy and leave it behind, becoming the world's strongest economy.
Most of us are not economists and do not know who to believe! But we can pray, and pray we must! An economic failure of the size that Chang predicts would have devastating implications for a billion and more people in China – and far beyond China.
- Pray for those in the Chinese government who decide economic policies, for wisdom and courage.
- Pray also for those who decide Covid lockdown policies in China, to be able to balance those policies with the needs of the economy.