This week saw the widely-awaited trade deal struck between the US and China. Critics suggested it lacked substance, but it does at least allow both sides to rebuild their weakened manufacturing sectors and move on to a second round of agreements.
- China posted the weakest growth in almost three decades
- There is a short-term impact from the Wuhan coronavirus
- The increasing personality cult around Xi Jinping may be more dangerous in the long-term.
The agreement is the tip of the iceberg in terms of working out how these two global behemoths will share political and economic power in the coming decades. However, there are increasing questions over whether China’s might can continue.
The trade tariffs have fed through into the real economy, supressing manufacturing activity and contributing to a fall in Chinese GDP growth to 6.1% last year, its slowest pace in 29 years. The Chinese could rightly argue that a slowdown in growth is inevitable, given the size of the economy – or even that the slowdown will reverse when an agreement is put in place. Equally, they could sell it as part of an overall shift away from manufacturing towards domestic demand, which is playing a rising and important role in economic activity. Retail sales have been growing at a steady 8% per year.
However, there are a number of threats to this continued strength. In the short-term, there is the Wuhan coronavirus. Economists are worried that this will deter holidaymakers during the all-important Lunar New Year travel season, where around 3 billion trips are expected. This could dent growth over the next few quarters.
Over the longer-term, the government’s move back towards autocracy also poses a threat. The Financial Times’ Gideon Rachman argues that it was Deng Xiaoping pledge to ‘seek truth from facts’, rather than Mao’s ‘little red book’ that helped set China on the road to its economic miracle, allowing the Chinese Communist party to embrace capitalism. This has been reversed under President Xi Jinping who is once again seeking to establish a personality cult.
The difference between one-party rule and one-man rule may seem like semantics – none of it is democratic after all. However, from Stalin to Ceausescu, one-man rule has a notably worse track record. Power is left unchecked, bad policies are readily adopted. There is already rebellion – most notably in Hong Kong, but also in Taiwan.
The US may be looking for ways to put a check on China’s power. It is possible that the Xi Jinping will do it for them, prioritising the continuation of his power over the ongoing liberation of the Chinese economy.