China facing new challenges for its economy

The need for China to increase its self-sufficiency will be the central theme of the fifth plenum of the Central Committee of the Chinese Communist Party. The 376 members, 346 men and 30 women, who make up the Central Committee will have to trace the path for the Chinese economy of the future, conditioned by both the pandemic and relations with the United States, and seek solutions to achieve what is indicated by President Xi Jinping . Chinese politicians have now come to the conclusion that whoever wins the American electoral competition, the US trade ostracism against China will continue; this factor combined with the pandemic could reinforce the global trend towards deglobalization, which represents the real danger to Chinese economic growth. For now, China has responded well, in terms of growth in gross domestic product, but an aversion to Chinese commercial practices, to repressive politics in its territory and also to the invasion in foreign countries, both European and African, is growing in the world. to condition the economic and even political policies of the countries where Beijing operates, through the use of large amounts of liquidity, which is often transformed into credits as an instrument of blackmail. If the economy is the main interest in the short term, China, in the medium term, wants to be a global leader also on the international level: for this reason the Central Committee must develop a five-year plan, up to 2025, for economic development , and a longer term, up to 2035, which allows to preserve the country’s economy, taking into account the geopolitical tension and in the face of an expected drop in exports, precisely in order to increase the country’s international prestige. The first need is to reduce low-value exports and focus on greater growth in domestic demand, the real weak point of the Chinese economy until now. This is the solution of the “double circulation”, a model that provides for a lower reliance on external demand, offset by a greater capacity for supplying raw materials, technological innovations and higher value production. A greater weight of the domestic cycle would make it possible to prevent and reduce the strategic risks associated with the international economic situation. On the other hand, China has enormous room for improvement on this front, both due to the large size of its domestic market and the current low level of incidence of domestic demand. From this point of view, the current contingency dictated by the pandemic represents an excellent test for these programs: the Chinese gross domestic product has grown despite the presence of covid-19, unlike most of the world’s economies, thanks to the push of internal demand, also favored by specific fiscal policies. The intent of internal growth certainly does not foresee the abandonment of exports, however the trend is already underway, given that the foreign trade share of the gross domestic product has gone from 50% in 2008 to the current share of 30%. This contraction was also affected by the decrease in low-cost labor in China, which also began to use workers from other countries for Chinese branded products. But, despite a greater specialization among Chinese workers and also a production of greater added value, the situation of rural areas, characterized by a still worrying retreat and with an increase in poverty, and therefore in inequality, due to the pandemic, compared to the cities , represents a brake on the Communist Party’s goals. The share of domestic trade that contributes to gross domestic product is still too low, being 38.8% compared to 68% in the US. A simple increase in wages would cause inflation and limit the thrust of exports; rather, the fiscal lever is identified to reduce inequalities and allow an adequate redistribution of wealth capable of allowing the rise in domestic demand, also through easier access to education, health and adequate housing policies. These policies may meet the resistance of the conservative classes of Chinese society, however the need for a more homogeneous growth of the Chinese people is the essential condition for breaking down those differences that do not allow the adequate increase in domestic demand and, consequently, the growth of the country. . However, it will be interesting to see if with a more widespread economic growth for the Chinese people, those needs linked to a greater diffusion of social rights, which have so far provoked the demonstrations against power, will not grow.