Widespread crackdown on Covid-19 in China is a worrying sign
When the global financial crisis hit Australian shores in 2008, it seemed likely that Australia would follow much of the rest of the world into recession and our real estate market could follow that of the United States and implode.
But against all odds, Australia was one of the few advanced countries to avoid a recession and a real estate crash.
While economists are still debating exactly how this has been achieved to date, there is no doubt that the enormous contribution made to Australia’s economic success by the Chinese government’s stimulus measures, which increased Australian exports of raw materials.
Since then, Australia has become more and more dependent on China every year. Australian exports to China reached around 50 percent of the national total at some point last year.
As a result, it is now a common idiom among economists that, “if China sneezes, the Australian economy catches a cold” – no pun intended.
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The two Chinas
When the closures ended in China in April 2020, two very different versions of the country emerged.
In one version, the economy exploded as construction and manufacturing hit new highs thanks to global and domestic stimulus flowing through the Chinese economy.
In the other, small businesses and less well-off households have struggled to cope with the financial hangover resulting from some of the world’s toughest foreclosure conditions.
As large parts of China now face further restrictions or closures from Covid-19, Chinese households and small businesses in affected areas again bear a heavy burden.
Unlike Australia or many other western countries, the Chinese government’s stimulus measures have focused heavily on the economy at large rather than on households or small businesses.
During the global financial crisis, this was done with great effect, with China enjoying explosive economic growth for years following the rollout of massive construction-focused stimulus programs.
But this time around, the benefits of strong overall economic growth are arguably not reaching less well-off Chinese households and small business owners.
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The strategy of the Communist Party
For years, rapid economic growth masked the growing inequalities in Chinese society, as living standards largely kept pace with the expanding economy.
But now, as the benefits of China’s economic growth spread more and more unevenly to the wealthiest populations, the CCP increasingly seeks to solve the problems faced by everyday Chinese people.
Or at the very least be seen as an attempt to resolve these and other issues.
The CCP’s strategy so far could be described as a bull in a china shop.
Many different sectors of society and the economy have been targeted, in an upheaval that has left few aspects of life in China untouched.
For example, Beijing has banned for-profit school tutoring, ostensibly to improve the balance between school and family life. While this is certainly part of the explanation, another key factor was the drain that the cost of tutoring places on household budgets, especially those of middle and lower class households.
In Beijing, efforts to reduce the burden of expensive education on Chinese households have been pushed even further.
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In the past three months, authorities have effectively nationalized at least 13 private for-profit Chinese schools, without paying compensation to owners.
Nationally, President Xi Jinping is pushing for a sweeping overhaul of China’s economy, with the ultimate goal of concentrating even higher levels of control in the halls of the Chinese Communist Party.
Last week, the CPC Central Committee and the State Council jointly issued a policy document that would expand government legislation and strengthen regulations, to “meet people’s ever-increasing demands for a good life.”
In the words of Bruce Pang, head of research at investment bank China Renaissance:
“Policymakers want to address and solve social problems effectively and efficiently to ensure social equity, justice, equality and national security as well as to prevent risks. “
As the carefully covered cracks in Chinese society continue to be exposed, the president takes an increasingly aggressive tone on issues of inequality and the distribution of wealth.
In a meeting earlier this week, Xi emphasized classic Communist ideals of moderate wealth for all and promoting “common prosperity.”
According to Chinese state media, the meeting participants called for “a reasonable adjustment of excess income and to encourage higher income groups and businesses to return to society more.”
While these types of policies have always been at the core of the CCP’s ideology theoretically, in reality, the interests of big business and the wealthy have taken an increasingly important part of the pie in recent decades.
Now that closures continue to have a disproportionate impact on small businesses and the less wealthy, those ideals have arguably been transformed from a “would be good” to something approaching a necessity.
If the Chinese economy continues on its current slowly deteriorating course, the aggressiveness with which the CCP pursues these goals and further crackdowns on the industry will likely intensify.
Ultimately, the Chinese Communist Party is very much aware of its responsibility to the Chinese people and how precarious its position is over time if the issues it faces are not properly addressed.
Tarric Brooker is a freelance journalist and social commentator | @AvidCommenter