Op-ed denotes an article that is opposite of editorial. Thus, this article does not reflect the official views of The Stork, nor the personal views of The Stork's Editorial Team.In recent decades, China’s economy has appeared to defy gravity, propelling itself up the industrial world ranks. However, beneath the surface, there are warning signs of an economic downturn: mounting debt, faltering real estate and concealed data.
Xi Jinping and the communist party are holding on by a string, and analysts are questioning the sustainability of this economic expansion. As China’s economy inflates under the pressure of expectation, the question rises: will it burst?
Concealing Data
On August 19th of this year, China’s stock exchanges not only failed to, but also entirely stopped publishing the otherwise normal daily data flows on foreign investment and capital. Recent data on the economy coming out of China’s National Bureau of Statistics (NBS) have been so contradictory and nonsensical that discrepancies the size of 230 billion dollars have arisen in balance of payment statistics. This was followed by mass confusion among foreign China watchers, but within this supposed economic haven, people feel more inclined than ever to invest, invest, invest.
Xi Jinping even recently claimed that there are now officially zero people living in absolute poverty in China as a result of their economic prosperity. Claims like this should never go unattended as they can be reflective of ambiguous standards and manipulation of statistics. China is proving once again that a lack of transparency surrounding any matter is not just illiberal, but also inefficient.
The Property Crisis
The real estate sector was, and still is, a pillar of China’s ballooning economy, contributing to around 24% of the country’s entire GDP. The Chinese people are linked to real estate not only financially, but also culturally. In China, a home is not just accommodation, it’s a symbol of wealth, and a prerequisite for marriage. Furthermore, the communist party presents home ownership as objectively superior to renting, which along with strong cultural ties causes an unseen amount of interest in the real estate market. But like anything that becomes overhyped, it inevitably crashes under its own weight.
The collapse of real estate titan Evergrande serves as a critical example of the risks accredited to China’s somewhat empty and rapid growth. The Evergrande Group was forced into full liquidation by a Hong Kong court after they accrued 300 billion dollars in debt to numerous investors. The firm ultimately failed because of overly excessive lending, which can be attributed to overconfidence. This overconfidence can be traced back to the Chinese government’s practice of concealing economic data, particularly in the real estate sector.
However, China not only concealed, but also actively manipulated data to forecast surplus demand. This leads to a misleading picture of endless economic growth and stability. By masking economic risks and underreporting on the vulnerabilities in the property sector, the government is inadvertently encouraging speculative and aggressive behavior.
As seen above, this has provided for some pretty eerie images of totally uninhabited buildings whose presence can be attributed to these extremely aggressive real estate projects.
Xi Jinping and the Chinese communist party have shown that autocratic rule often leads to short-term economic growth. Though the great downfall of the Chinese economy has not occurred, and might not do so soon, examples such as Evergrande’s collapse could reflect on the future of several other giants in the Chinese economy. The lack of freedom that comes with such a style of leadership is stifling and detrimental to long-term economic growth, innovation and resilience.
Without the crucial checks and balances of transparent and open markets, overwhelming ambiguity and misleading economic sentiment prevail. Such as China’s foggy economic data that lead to overinvestment and excessive aggression. Though China’s balloon economy might not burst just yet, it sure will require more than just a string to hold onto.
Featured Image: Theodor Lundqvist, Unsplash
