The end of GDPism in China as we know it (?)
and I feel fine
The self-promotion cycle for books never really ends, but I think this post covers my last major attempt to raise awareness of Seeking Truth and Hiding Facts. The China Project published “Is China losing GDP religion?” last Friday with this lovely illustration.
My alternative art was rejected.
As this piece is proudly part of the Seeking Truth and Hiding Facts Extended Universe, and you’ll see some of your favorite characters: like Zhou “I cared very much about development speed and economic volumes, but not as much about people’s own interests” Benshun, and Wen Jiabao.
But this piece is not just rewarmed ideas that you’re better off reading in the book. In particular, after the 20th Party Congress, I think we have to grapple with two ideas. Even if you read Xi’s speech as putting security ahead of growth, as some do, what does that really translate to on the ground? What would it mean for the new gods -- Security -- to have successfully replaced the old gods -- GDP? For a still-not-rich country, growth feels imperative for security, for strength.
Additionally, there was a spate of stories immediately after the Congress about how markets were crashing, the rich were relocating their families to Singapore, etc. It’s important not to let that sense that Xi’s economic program has been rejected based on that initial bit of data, because those markets have already rebounded afterwards (and now seem to be giving back those gains). Why did they go up? Because there were stories about the end of zero COVID and the extensions of lifelines to developers that quickly become packaged as part of a narrative that Growth was back. As cities retighten a bit in the face of actual COVID numbers exploding and even officially acknowledged deaths, that confidence that the spigots would be opened and the money would flow again has waned.
To be clear, this substack is never investment advice, other than noting the real value of buying books, perhaps especially as a Twitter hedge.
But it seems clear that the difficult economics and politics of navigating the end of zero COVID and muddling through the deflating of a fifty trillion dollar real estate bubble will involve lots of turbulence in the short-to-medium term. Here, for instance, is a top Chinese economic official calling for a 5% GDP growth target for 2023 before we even know what will happen in the last six weeks of 2022. As I said in “Why China Aims Too High”
Last year, Xi announced a slew of new regulations on the Chinese technology sector, with a goal of reigning in the power of this growing part of the economy. This shook investor confidence, sparking losses beyond $1 trillion while failing to significantly redistribute resources or improve equality. A likely impetus for reinstituting the GDP target was to signal to investors, bureaucrats, and the public that, despite Xi’s moves, China remained committed to growth.
Even absent geopolitical tensions with the United States, global energy crises, and climate-change-induced disasters, China’s economic ship needs reconfiguring. Trying to do so amid all of this chaos will not be easy, and having to do so for a political system that relied on simple growth targeting to measure competence and guide promotion decisions will be even harder.
A final thought. China figuring out zero COVID is incredibly important. People will likely get sick and die, perhaps even by the hundreds of thousands, and the virus could evolve in dangerous ways with so much replication. But the restrictions that chafed over the past three years have begun to dig into the skin of people, leaving marks and scars that will persist. I’ve spoken with a number of colleagues who haven’t seen their families in years. How many weddings, funerals, graduations, births have been missed? How can we quantify such losses and see how that anguish balances against the public health benefits of zero COVID?
But as significant as the slow end of zero COVID is, in many ways, China figuring out how to untangle itself from the land, finance, and real estate triangle that has dominated for decades is even more significant. Because the over-investment, over-indebtedness, overly-speculative nature of it all isn’t just a problem on balance sheets, but a problem for the atmosphere. The emissions intensity of excessive construction is huge—so much carbon is emitted in making that cement and steel. The wasting of land for empty apartment units rather than for growing crops or collecting sunshine and converting it into clean electricity is a failure of similar scale.
So, increasingly, the questions of China’s climate politics and policy are intimately connected to these questions about growth and ending the construction-based political economy of local governments. More on this in the weeks, months, and years to come.
Thanks for your patience as I promoted Seeking Truth and Hiding Facts. I spent the past decade grappling with it, and I hope you find it worth your time (and money). Please let me know if you have any questions or concerns. If you’d like to review the book, contact me. If you’d like for me to speak to your students, your board of directors, your television or newspaper audience, your local football stadium, please let me know immediately (wallaceATcornell.edu).