China, once hailed for its rapid economic growth and ability to swiftly address economic downturns, now grapples with a series of persistent economic challenges. These issues, ranging from sluggish growth and faltering exports to a sinking property market and rising youth unemployment, can be traced back to the top echelons of its leadership and their adherence to Soviet-style policies.
In the initial three decades post its international trade and capital opening, China's leadership adeptly navigated economic challenges. This era marked a significant departure from old Soviet-style policies, embracing pro-market strategies that decentralized economic power, placing it in the hands of the masses. Such policies not only eased geopolitical tensions with the U.S. and its allies, fostering exponential growth in exports, but also lured numerous European and U.S. corporations, eager to leverage China's affordable labor force.
A testament to China's economic agility during this period was its response to the Great Recession of 2008-9. A swift monetary and fiscal stimulus not only salvaged its own economy but also provided a cushion to the global economy.
However, the present scenario paints a different picture. China's leadership is now tasked with steering the economy towards sustainable growth, mitigating a looming property crisis, bolstering dwindling exports, and creating employment opportunities for its burgeoning youth population.
Several economists attribute this shift in China's economic prowess to various factors. Some argue that China is ensnared in the "middle-income trap," where growth decelerates as a country reaches middle income. Others point to the Lewis Point, suggesting that the depletion of excess agricultural labor has escalated wages, eroding China's competitive advantage in labor-intensive sectors. Yet, another perspective is that the sheer size and complexity of China's economy make rapid growth a challenge.
Juscelino Colares, a professor of business law, offers a different viewpoint. He attributes China's economic challenges to the Chinese Communist Party's (CCP) return to centralized policies. Colares argues that the CCP's rigid, command-and-control policies, which prioritize political stability and social control, have hindered China's ability to adapt to internal and external economic shocks. He cites the COVID pandemic and the reorganization of global supply chains as prime examples.
Furthermore, Xi Jinping's reluctance to deviate from the export-led growth model has precipitated a real estate bubble, exacerbating employment and demographic challenges. Colares believes that market reforms, which the CCP has been hesitant to implement, are the solution.
Tenpao Lee, professor emeritus of economics at Niagara University, suggests that China could benefit from emulating the U.S.'s approach to economic management. He proposes that China should establish free trade agreements with nations like Russia, akin to the NAFTA.
In conclusion, while China's economic challenges are multifaceted, a common thread is the need for flexibility and adaptability in policy-making. Whether it's embracing market reforms or forging new trade alliances, the path forward requires a departure from rigid, centralized policies.