The West must save China’s economy – before it’s too late

China’s economy faces significant challenges and, among the limited options available, there are only two paths to recovery. The first would be complete reintegration into the global system. The second would be to stimulate the real estate sector in the short term to avoid an immediate collapse while exploring alternative solutions. Unfortunately, both options have either been rejected by Chinese leader Xi Jinping or pose significant challenges.

Integration into the global system has been a key driver of China’s remarkable economic growth over the past four decades. China’s economic foundation rests on three pillars: investment, consumption and exports. However, the first two pillars, investment and consumption, have proven problematic. China’s economy has relied heavily on government real estate and infrastructure projects, but the real estate market is a fragile bubble, incapable of ensuring a robust economy, even if it generates temporary growth. Infrastructure investments aimed at boosting GDP face similar problems, making the investment also an unreliable basis.

The second pillar, consumption, has its own challenges. China’s consumption base remains weak due to significant wealth inequality; a small group of wealthy individuals coexists with a majority of much poorer citizens, and their spending alone cannot support the economy as a whole.

The real engine of the Chinese economy lies in manufacturing exports. China’s status as a “global factory” allows it to make real profits, and these exports form the foundation of China’s economic foundations. China’s collaboration with developed Western countries has resulted in significant advancements in science, technology and business operations.

If China can rebuild this pillar, there is potential for economic recovery.

And yet, the path to reintegration seems to be narrowing, if not closing completely. There are rising labor costs and geopolitical factors, and Xi Jinping’s attitude indicates that he is increasingly abandoning integration as a goal. Xi’s absence from the recent G20 summit in India speaks volumes about his reluctance to engage with leaders of the world’s richest and most influential countries.

In fact, so far, Xi has only made three trips abroad, all to countries friendly to Beijing. This is a significant change from its pre-COVID practice of at least 10 trips per year.

This reluctance likely stems from domestic political pressures, China’s economic challenges and strained relations with India. But whatever the reason, this approach is not effective if China wishes to re-enter the international system.

The outcome of US Commerce Secretary Gina Raimondo’s recent visit to China remains uncertain. Although Raimondo spoke of the interdependence between the U.S. and Chinese economies, steadfast restrictions on high-end chip exports to China due to national security concerns are a sign of ongoing tensions. Beijing realizes that U.S.-China relations are unlikely to return to their previous state, when the United States provided market access, financing, technology and management training, all essential to today’s Chinese economy.

China’s most compelling argument to the West at present is that its economic problems will harm the global economy, including the United States and the West, if not improved. .

And China is right: It is in the West’s best interest to help China avoid collapse. The Western world has every interest in ensuring the stability of the Chinese economy. As Raimondo said in a News Time interview: “We do about $700 billion in trade with China every year, which supports hundreds of thousands of jobs in America. So anything we can do in trade with China that creates jobs in America or helps American businesses grow and innovate is a good thing. good thing.”

Despite this deep interdependence and China’s urgent need for Western support, Xi Jinping appears to favor coercion rather than engaging in diplomatic efforts to achieve his goals. China opposes “guardrails” in its relations with the United States, refuses regular military communications and makes it difficult for Western diplomats to reach Chinese officials. This is a dysfunctional approach that closes the door to reconnecting with the West.

As hopes for China’s reintegration fade, intensive real estate recovery policies have emerged. These policies include reduced down payments for mortgages and significantly lower interest rates, as well as the removal of purchasing restrictions in many cities. These measures temporarily strengthened the real estate sector, preventing an economic collapse and buying time to explore alternatives. Shares of Chinese real estate companies jumped in response.

But this is a short-term solution at best. According to Chinese media, there are enough houses in China to accommodate 3 billion people, but the population is declining. Finding a replacement for real estate and exports amid Western technology sanctions poses a formidable challenge for China’s future.

Ms. Gao is a journalist and host of Zooming In with Simone Gao.

The opinions expressed in this article are those of the author.