China at a turning point. “People are losing faith in a better future.”

If we were to make a list of economic topics that have been covered by the global media in the 21st century, the prediction of an economic crisis in China would certainly be at the top of the list. This is due to the growing importance of the Middle Kingdom’s economy and the Chinese authorities’ model of managing economic issues, which is different from the Western model. Years go by, and a massive collapse in China is still not in sight, but it would be a mistake to underestimate the enormous challenges facing Beijing.

In the second quarter of this year, China’s GDP grew by only 4.7 percent, worse than the first quarter (5.3 percent) and economists’ expectations (5.1 percent). Although the growth rate is still relatively high on a global scale, in the case of the People’s Republic of China we are talking not only about economics, but also about politics – behind the Great Wall, it is the authorities who announce their GDP growth targets.

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– As a result, some activities are not economically motivated and are unproductive – comments Maciej Kalwasinski, an analyst at the Center for Oriental Studies.

The 2024 plan assumes results of “around 5 percent,” with no room for further worse outcomes. Chinese propaganda, directed at home and abroad, demands “achievement” of economic results.

– The lower GDP target than in the past shows Beijing’s acceptance of slower expansion. Kalwasinski adds that the priority today is economic security, not “artificial” growth.

The latest batch of monthly data from the Chinese economy reflects the long-term challenges it faces. Retail sales (2% y/y) fell much less than expected (3.4%), and the overall picture was saved by industrial production (5.3% vs. 5%). Meanwhile, as the People’s Republic of China continues to develop, experts have been reminding, like a mantra, for years of the need to shift the economy away from export and investment paths and stimulate domestic demand.

In this way, China, which has been the “world’s factory” in recent decades, could become partly independent of foreign recipients of its goods, who may limit their purchases due to their economic situation and political decisions. This is clearly demonstrated, for example, in the context of the dispute between the People’s Republic of China and the European Union over electric cars. There are also frictions in the American direction (including in the field of technology), which could intensify after the presidential election in November, especially if Donald Trump wins.

So why don’t the Chinese start spending more on domestically produced goods? Partly because they’re just emerging from mass lockdowns and already have other serious problems to deal with.

– Profits are not growing as fast as they were before the pandemic, and the job market is tough. Many Chinese have lost faith in a better future and prefer to save more for a rainy day, says Kawasinski.

Real estate is at the heart of the personal finances of many citizens of the People’s Republic of China, accounting for about 70 percent of household assets. The Chinese tendency to save is the subject of a separate article (the Chinese also have a lot of deposits in banks, “only” about $ 20 trillion), but it is worth remembering that it is caused, among other things, by a low level of social security. At the same time, in recent months, apartment prices have fallen and concerns have grown about the state of debt-ridden developers. The problems facing Evergrande, much discussed in the West, have not turned out to be equivalent to the collapse of Lehman Brothers, but that does not mean that the Chinese real estate sector is actually healthy. The authorities in Beijing are trying to alleviate the problems that have accumulated over the years, although the support provided to developers is not unconditional, as is evident, for example, in the falling prices of shares of listed companies (in which ordinary Chinese have also invested their wealth).

In addition to trying to boost the fertility rate, the Chinese authorities see an opportunity to overcome the technology crisis – as the number of working-age workers shrinks every year, robots are needed. The attempt to transform the People’s Republic of China from a country dependent on cheap labor to a technological powerhouse is already underway, and Beijing’s apple of the eye is sectors such as artificial intelligence, energy, electric mobility and food production. “China has become a technological superpower” – The Economist announced in June.

The strong focus on technology is intended to prepare the PRC for a confrontation with the United States, both in terms of potential sanctions and in a purely military dimension. Drawing conclusions from the sanctions imposed by the West on Russia, China not only wants to become more resilient and resilient by achieving greater self-sufficiency, but also wants to make the possible abandonment of its own technologies too costly for its foreign partners. In an economy where the state is so important, the focus is especially important – it is impossible to support families, develop high technologies and prepare an army for domestic or global battles at the same time.

– Faced with a choice between easing the problem of low consumption and strengthening the “fortress” besieged by the Americans, Beijing is choosing the technological “escape forward” option. For the Chinese authorities, security and technological progress are more important than improving the quality of life of the Chinese, Maciej Kalwasinski of OSW commented.

– During the deliberations of the Third Plenary Session, it was stressed that in order to continue to deepen reforms in an all-round way, it is necessary to adhere to Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the important idea of ​​the “Three Represents” and the scientific development outlook, and it is necessary to comprehensively implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era – we read in the summary posted on the website of the Chinese Embassy.

According to the OSW analyst, “the CCP authorities did not use the plenum to show that they have specific solutions to the problems and intend to support the economic situation.” – Kalvasinski says that Beijing’s priority remains preparing for a confrontation with the United States.

Michal Żuławiński, Individual Investors Association