China’s state-dominated economy is imploding
There’s an old Wall Street saying, “When the United States sneezes, the rest of the world catches a cold.” But what happens when China – the world’s secondlargest economy – suffers economic problems? The first half of 2023 delivered a stream of bad news for China’s economy: slow growth, record youth unemployment, low foreign investment, and a property sector in crisis. China’s economy was about 77 percent the size of America’s in March 2022. Today, it is closer to 68 percent. When you consider that China is responsible for more than a third of the world’s growth, any deceleration will be felt beyond its borders.
What began as anemic growth is becoming a complete implosion. China’s manufacturing base, the mainstay of its economy for decades, is hemorrhaging. Its trillion-dollar homebuilding industry is collapsing under unsustainable debt levels. Its unprecedented infrastructure campaign has been a crash course in bad decisions. The cause, in short, is an incompetent government that routes trillions to politically favored industries and state-owned enterprises, all while suppressing the very entrepreneurs and markets that began launching China’s rise to prominence 40 years ago.
President Xi Jinping, who has been described as another Mao with money, has taken a decidedly dark turn of late, with ever more government intrusion in the economy. He has clamped down on internet and financial companies, such as Alibaba and Ant, whose billionaire founders were seen as challenging his authority. He has increased his control over the economy by strengthening the role of state-owned enterprises at the expense of private-sector investment. This has been detrimental to both economic growth and innovation. Xi has invested more than a trillion dollars in huge infrastructure projects known as the Belt and Road Initiative. More than 150 countries, some with shaky credit, have received Chinese money and technology to build roads, airports, seaports, and bridges. Many of these projects will never be completed and will never return anything to China.
The average Chinese citizen is heavily invested in real estate, which currently consists of empty office buildings or housing that may never be built. The unemployment