Return of the Giant to the Lamp

The Return of the Giant to the Lamp

The Return of the Giant to the Lamp, according to Iran Gate, once upon a time, the Chinese miracle happened. A country that over thirty years of reforms and openings gradually distanced itself from poverty and misery and became a superpower. In this country, the social contract between the Communist Party and the citizens was clear: do not question or challenge our authority, and you will have the freedom to wake up wealthier each day than the day before.

It seems that China is over. On one hand, because its development model as the low-cost factory of the world, entirely exporting infrastructure for the first phase of growth to the middle-income level, progresses well but then gets trapped. Investments become less productive every day, and debt accumulates without acting as a driving force. On the other hand, because the Party and its permanent leader Xi Jinping, facing increasing risks that began with the power challenge with the United States, have changed their priorities.

Now, security and turning China into an impregnable and cohesive fortress matter more than development, and the social contract with the citizens has changed in nature: only the Party can guide you through danger and maintain order and stability, but it must govern everything, whatever is necessary and at any cost.

Therefore, it is necessary to use different political lenses to interpret the recession in which the dragon is coiling, the declining growth rate, decreasing inflation, the soaring youth unemployment rate at its highest, and the growing distrust, to understand that the government has deliberately initiated this crisis, even with the awareness that China itself is at risk of getting caught in it.

The strict measures and restrictions implemented in the real estate sector, which have temporarily halted and suspended sales and driven real estate giants towards bankruptcy, are a very dangerous remedy due to skyscrapers remaining empty one after another and the price of bricks reaching a third of their value during growth.

Also because the privilege of granting land to skyscraper builders was the first source of revenue for local authorities. However, this is necessary and inevitable because the unproductive bubble had to be deflated, but the problem is that this is not enough for a real paradigm shift towards high-quality growth, which Xi himself theorizes.

Many Chinese economists believe that for the next push towards prosperity, transferring resources from state and semi-state sectors to private companies is necessary. Additionally, there is a need for less heavy industry and more advanced technology and services, as well as less investment equivalent to 44% of GDP and more consumption, stabilizing at a rate of 38%.

They also believe that inequalities must be reduced and wealth transferred to families through healthcare and education expenses because the lack of a real welfare system causes the Chinese to start saving instead of investing and consuming.

In all this, there is no trace of the vague formulas of common prosperity, and the explanation that can be given is once again political: Xi Jinping’s centralized and authoritarian turn, convinced that this is the only way to guarantee the future for China and the Party, is based on capillary control over the economy and society. Xi Jinping wants the power to direct resources towards strategic sectors to challenge the United States, a challenge that started with chips and announced that private companies must align with it or be forced to do so, as demonstrated by the attack on Jack Ma’s technology empire.

Instead, a paradigm shift requires dismantling the institutional and power structure that has crystallized around that economic model over the years, with unpredictable effects on government stability. State industries with their legendary salaries are one of its pillars, just like the use of welfare policies as a control tool.

Behind the ideological attacks against Western-style welfare with the claim that subsidies are not suitable for the Chinese because they lead them to the couch, there is a hidden fear that a real welfare system would grant them more autonomy and independence, which would strip the Party of its power.

Therefore, now that the economy needs an electric shock to prevent social instability, we return to the previous prescription: more credit and infrastructure, despite the fact that the space for stimuli is increasingly narrowing and limited, with debt exceeding 300% of GDP and effectiveness continuously decreasing.

Of course, it should be noted that no observer expects a collapse. The Chinese government has levers to control the contagion of real estate and will achieve the growth target for 2023, a rate of 5%, by any means necessary and at any cost.

One of the characteristics of leadership is pragmatism, which in the past has allowed them to reform themselves and render the worst predictions ineffective. However, the hypothesis that many propose is that because Xi Jinping has surrounded himself with yes-men instead of pragmatic advisors, China is currently undergoing demographic decline and sliding into a long period of recession.

Just like the period experienced in Japan in the 1990s, but what should be noted above all is the fact that China is entering a recession while still being a developing country with a per capita income of less than $15,000, which is five times less than the United States.

This scenario raises two questions: Has China reached the peak of its power? No, China remains the world’s second-largest economy, but billion-dollar investments in high technology, even if not enough alone to guarantee growth in the old way, will push it towards new industrial and military heights in the coming years.

The second question is how will citizens react to this transformation that jeopardizes the promise of complete prosperity? Will they question the legitimacy of the leadership? The answer is not easy because what Xi Jinping is doing, while replacing the narrative of the Chinese dream with the narrative of a besieged fortress, is silencing negative data, stifling any independent voice, and increasing the volume of nationalist propaganda.

This is a message that resonates about a people who take pride in their resilience and still remember poverty and disorder. Many may join the Communist Party, if not out of enthusiasm, due to the lack of an alternative.