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June 2020, No. 94


Global  Crisis

China on Economic Alert!

Social unrest might be the “black swan” risk facing the country, Zweig added, using a phrase that Chinese President Xi Jinping himself uttered last year to describe an improbable but chaotic event.
 

The Chinese government wants to do whatever it can to protect the economy in 2020. It’s got an enormous task ahead of it.

Beijing has made clear that the world’s second largest economy cannot spiral into a slump and risk mass layoffs as it tangles with rising debt, cooling domestic demand and an ongoing trade war with the United States.

In a January 13 report, CNN’s Laura He said social unrest might be the “black swan” risk facing the country.

That’s particularly important this year because it marks the conclusion of the government’s 13th Five-Year Plan, during which it promised to establish a “moderately prosperous society” and end poverty. Senior members of the Communist Party’s Politburo — the seven most powerful men in China — said recently that all efforts must be taken to achieve those goals in 2020.

In recent months, the government has bombarded the economy with a wave of stimulus measures, from tariff reductions that could help soothe the pain from rising prices, to rate cuts that could fuel more bank lending.

Authorities are also amping up the language they’re using to describe the situation. China’s State Council in December called on local governments to “go to all lengths” to prevent massive job losses this year — what it characterized as the country’s top policy priority.

The chief administrative office even warned that the country could face “massive unexpected incidents” if unemployment balloons — a euphemism in China widely understood to refer to social unrest and riots, and one that is rare in public government documents. In recent years, the government has said it has to create 11 million new jobs annually to keep employment on track.

While China’s official unemployment data has barely budged over the last several years, hovering between 4% and 5%, Beijing’s messaging suggests that it is unusually worried about the slowing economy and the challenges that the year could bring.

“Beijing is much more worried about social unrest than about ballooning local debt, which at one point seemed to be a priority,” said David Zweig, director of Transnational China Consulting Limited and a professor emeritus at the Hong Kong University of Science and Technology.

Huge protests, after all, have for months consumed Hong Kong, which local officials said last November would sink into its first annual recession in a decade. The protests have focused on calls for greater democracy, but economic factors such as the soaring cost of housing and an increasingly competitive labor market have been fueling a growing sense of dissatisfaction, particularly among the city’s young people.

Social unrest might be the “black swan” risk facing the country, Zweig added, using a phrase that Chinese President Xi Jinping himself uttered last year to describe an improbable but chaotic event.

“2020 is going to be very difficult, and mass unemployment may be the most feared problem,” said Frank Ching, a China political commentator and adjunct associate professor at the Hong Kong University of Science and Technology. “It’s not just an economic issue — it could develop into a political one.”

Mass unemployment — brought on by a severe economic slowdown and the failure of businesses in China — could cause rising social tensions and generate greater unrest, shaking the legitimacy of the Chinese regime, he added.

Major political and business figures in China have expressed concern about the economy, too.

Late December, Commerce Minister Zhong Shan told people to tighten their belts and prepare for a tough year ahead. “Use every penny on vital things,” he told dozens of top commerce officials at a policy meeting.

Alibaba (BABA) founder Jack Ma also recently acknowledged the difficult business climate in 2019, telling entrepreneurs in Shanghai last month that “we also have to know that it might just be the beginning.”

 

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  June 2020
No. 94