Raisi’s Memento on the Fragile Wall of China and Russia Part Two

Raisi’s Souvenir on the Fragile Wall of China and Russia Part Two

Raisi’s Souvenir on the Fragile Wall of China and Russia. According to Iran Gate, the bankruptcy of construction industry giants in China signals a worsening economic situation in China. One of the most famous Nobel laureates in economics also believes that China has not yet entered a real and serious crisis. According to this prominent economist, China will enter a mega economic crisis by 2025, a crisis that could bring a fate similar to Japan in the 1990s for Beijing.

Iran Gate, in a three-part series, has critiqued the ‘Look to the East’ policy of the Islamic Republic. This policy, which has been prioritized more than ever with the coming to power of Ebrahim Raisi’s government, has caused concern among many analysts. The first part described Iran’s relationship with Russia and China, but the present report, which is the second part of this series, examines China’s economic and political situation and also evaluates potential threats to Iran.

Hyper-crisis in Beijing

Recently, Joe Biden, the President of the United States, stated that China’s current economic crisis is actually a bomb on the verge of explosion. Prominent economists like Paul Krugman, a Nobel laureate in economics and a columnist for the New York Times, who had warned about such a crisis years ago, believe that this crisis has not even reached its initial stages.

According to Krugman, China’s economy is on the brink of entering a period that could replicate Japan’s fate in the 1990s for Beijing. A fate that won’t mean a complete collapse of China’s economy but will naturally result in a severe recession and Beijing lagging behind in global economic competitions.

Evergrande and Xi Jinping

Xi Jinping, the leader of the Communist Party of the People’s Republic of China, reacted strongly to Biden’s remarks about China’s economic situation. The Chinese leader, while defending his cabinet’s economic performance, praised the strong resilience, extraordinary potential, and great vitality of this country’s economy. In his statements, he tried to reassure China’s trade and economic partners about economic stability in Beijing.

But no one can forget the image showing Chinese army tanks on the streets of Shanghai and Beijing to counter any uprising, an uprising that was likely following the bankruptcy of the country’s largest housing construction company and subsequently the bankruptcy of several Chinese banks. Of course, at that time, Evergrande had not yet gone bankrupt, but some banks were seriously affected by this company’s unfavorable conditions. The government immediately intervened and effectively covered the gap caused by the banks’ bankruptcy by printing money.

But things got worse when the government faced the bankruptcy of the country’s largest builder. Xi Jinping had no choice but to print money in response to this event, which sparked the initial flames of an economic hyper-crisis in China. The dimensions of this crisis become clear when we know that one-third of wealth production in China was in the housing sector, and the largest player in construction was the bankrupt Evergrande.

Thus, it is predicted that despite China’s average growth of 9% from 1989 to 2022, this year it will experience growth of about 4%. This statement means a deepening and widening gap between the US and China and is good news for the White House.

The Old Yellow Dragon

In the 70s and 80s, many analysts believed that Japan could replace the US as the world’s largest economic superpower by the 2000s. Tokyo’s economic growth was such that many American citizens made large investments in Japanese markets, and some even emigrated. But Japan suddenly entered a heavy crisis phase at the beginning of the 90s, causing Tokyo to lag in competition with the United States.

There was a big bubble in Tokyo’s housing and stock markets that suddenly burst at the beginning of the 90s, causing the Nikkei stock market index in Japan to this day not return to the level it experienced in 1989. But the reason for this event was the demographic crisis that had gripped Japan’s economy. This factor, according to Paul Krugman, has also ensnared Beijing and will soon lead China’s economy into a new phase of a serious hyper-crisis.

Prominent world economists believe that the decline in Japan’s population growth rate and the aging workforce were the main factors for the significant decrease in investment rates in this country. This factor, which disrupted the balance in the labor market, paved the way for Japan to enter a heavy recession in the 90s. This situation worsened with Japan’s negative population growth rate, ultimately causing Japan to fall behind in the competition cycle with the world’s largest economy.

Now many believe that China’s demographic policies in the 90s and 2000s have led the Chinese today to be on the brink of a serious hyper-crisis, larger than what was experienced in Tokyo. The governments of Jiang Zemin, Hu Jintao, and Xi Jinping adopted a strict policy for Chinese households, allowing each family to have only one child. This policy, implemented to control China’s skyrocketing population growth rate, had widespread consequences in this country, which today has a serious manifestation in China’s economic arena.

Beijing and a Sick Economy

Strict population control policies in China have led to the country currently facing a population aging crisis and consequently an aging workforce. This policy has led to an imbalanced economy in Beijing today, where Chinese consumer demand is very low. The housing and real estate sector is also facing heavy inflation, and the unemployment rate among young Chinese is on the verge of entering the 14% range, which is a disaster for the world’s second-largest economy.

All these features have led prominent world economists to speak of China’s economy being sick. Of course, this sickness will not mean China being brought to its knees in the coming decades, but Krugman believes the dimensions of this hyper-crisis will be much larger and more severe than what happened in Japan in the 90s. It should not be forgotten that China, with a very slight difference from India, is considered the second most populous country in the world, and naturally, a crisis in this country of 1.4 billion people could affect the lives of many citizens in different countries around the world.

Hyper-crisis in Beijing, Mega-crisis in Tehran

Considering the described state of China’s economy, it can be concluded that Beijing will not be a suitable destination for major global investors in the coming years. This situation has led to the Chinese no longer being recognized as a reliable and dependable partner for the world. Therefore, it was expected that the Iranian government, given the extensive cooperation it had with the Chinese, would take steps to limit this relationship and cooperation.

However, in the past two years, since Ebrahim Raisi took over the executive branch, we have witnessed the limitless expansion of Tehran’s economic cooperation with Beijing. Reports have been published indicating that more than 90% of Iran’s oil is exported to China, causing concern among many experts. On the other hand, the presence of various Chinese companies in Iran has become much more prominent, which could act as a warning bell for Iran’s economy.

While most of Beijing’s economic partners are reducing their scope of cooperation with China, Ebrahim Raisi’s government has provided space for limitless Chinese presence in Iran’s economy. This action by the thirteenth government, carried out in line with the ‘Look to the East’ policy, could have widespread political, economic, social, and even security consequences for Iran. Consequences that threaten the country’s already weakened society and economy and could lay the groundwork for economic, social, and ultimately political collapse.

In the next part of this series, the consequences of limitless reliance on Russia will be discussed.