China’s Looming Crises of the New Year: Relatively Low Economic Growth and Nearly Unprecedented Demographic Decline
Author: Robert Bray
Editors: Ava Holtzman, Joshua Blaustein
For the past three decades, the world has seen the People’s Republic of China (PRC) as a youthful economic juggernaut on a one-way trip to surpass the United States as the world’s predominant economic force. However, this January the PRC has reported that in 2022 the country’s economy had only grown by 3% , while its population had shrunk by approximately 850,000 people, marking China’s first population drop since the Great Famine of Mao Zedong’s Great Leap Forward. These stark numbers put into question China’s ability to continue its meteoric ascent and President Xi Jinping’s (习近平) efforts toward achieving the great rejuvenation of the Chinese nation.
Though 3% yearly GDP growth would be considered quite good in the United States and many other developed countries, taking one look at China’s historic economic growth rates since the early 1970s makes this sense of disappointment clear. Ever since the abandonment of the Maoist policies of centralization and collectivization and the implementation of Deng Xiaoping’s (邓小平) market-oriented reforms, China has consistently achieved an average of 9% annual GDP growth. New profit incentives, dramatically increased foreign investment, and a global shift in manufacturing from the United States to China has enabled China’s transformation into the world’s 2nd largest economy.
In recent years this economic boom has grown increasingly imperiled. The first and foremost threat in the minds of the leadership of China’s Communist Party is the fiscal aftershocks of the country’s three yearlong enforcement and subsequent abandonment of its zero-Covid strategy. The government’s sudden U-turn from pervasive testing, unavoidable travel restrictions, and draconian quarantines to outward indifference and acceptance of the spread of COVID-19’s Omicron variant will likely result in hampered growth in the near term. Chinese citizens and companies alike are struggling to return to business as usual amid spikes in COVID-19 infections, hospitalizations, and deaths. Long term threats to China’s economic growth include the ongoing real estate crisis, increased protectionism compounded with technological trade restrictions from an increasingly suspicious United States,as well as a seemingly unavoidable drop in birth rates that will only exacerbate the graying of China’s population over time.
In the heady days of double-digit GDP growth that defined the reform and opening period of Deng Xiaoping, China had a youthful population and very few senior citizens. This strong base of young people would become the backbone of the Chinese economy in the years to come by enabling the country’s manufacturing and export boom while the absence of elderly people meant less retired workers in need of social services and benefits. However, Deng Xiaoping and the CCP nonetheless feared the potential of overpopulation to drain and destabilize the country. This fear would result in the implementation of the One Child Policy in 1980, which coerced citizens into having less children with the threats of fines, forced abortions, employment dismissal, and the restriction of government benefits.
This policy, combined with the natural birth rate decline that occurs as a country becomes more developed, has unwittingly pumped the brakes on China’s economic growth rate in the long term. The graying of the country’s population will inevitably lead to less workers in factories and more citizens relying on government support. Xi Jinping and CCP leadership now fear the country will get old before it gets rich and subsequently fall into the middle income trap, unable to compete in the manufacturing heavy secondary sector nor the service providing tertiary sector of the world economy. To combat this development, the government has backpedaled on the One Child Policy, attempted to make child rearing more affordable, and cracked down on feminists and members of the LGBT community. It is doubtful that these efforts will succeed in alleviating China’s ongoing demographic decline.
COVID-19 induced market troubles and a shrinking population ultimately will not collapse China’s economy nor reduce its prevalence as a global actor, but it will likely hamper Xi Jinping’s aspirations and fray the political legitimacy of the CCP. High debt levels and economic trouble at home have already forced President Xi to pare back his signature Belt And Road Initiative and “common prosperity” program. More cutbacks may be in the works if these problems continue to worsen. One thing is for certain, the centralization of power at the top of the CCP hierarchy will ensure that the dual crises of reopening amidst COVID-19 and the further decline in population will be addressed in a manner of President Xi’s choosing, for better or worse.
