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Factors Behind China’s Economic Stagnation

China, once hailed as the global economic powerhouse, is currently battling a persistent economic slowdown that has alarmed people all over the world. Intense discussion regarding the causes of this economic slowdown, which is frequently linked to "economic long COVID," has taken place among academics.

A worn-out growth model, demographic stagnation brought on by the one-child policy, and poor leadership are some of these issues. China's economic transition was sparked by Deng Xiaoping's reforms in the late 1970s, but the country's growth model, which gave priority to exports and investment above domestic consumption, was doomed to failure.

Years before the pandemic, China's economic foundational flaws were clearly clear. The growth strategy that brought China out of poverty and into the spotlight of the world economy was beginning to falter. There was a chance to shift the emphasis toward domestic demand-side economic changes when Xi Jinping became president in 2013, but this chance was not completely taken advantage of.

The underlying issues with China's economy may not entirely be Xi Jinping's fault, but his leadership style and policy decisions have made matters worse. Instead of focusing on changes that would increase domestic consumption and build a stronger social welfare system, Xi launched state-led investment initiatives like the Belt and Road Initiative and "Made in China 2025." These actions diverted funds away from sustaining households and inhibited private entrepreneurs focused on the consumer.

Global dynamics have also contributed to China's economic problems. A negative perspective has been exacerbated by increased military activities near Taiwan and a decline in Western confidence in China. Spending and risk-taking have been discouraged by the dread of armed war, particularly among the one-child generation. This external pessimism has exacerbated the widespread decline in confidence, which is frequently referred to as a "psycho-political funk."

China's economic time bomb was not put together by Xi, but he did drastically shorten its fuse. His tough-minded policies and leadership style have made the economic recession worse. Unlike in the past, Xi's response has been one of regression, both politically and economically, as opposed to reform and pragmatism.

It is still possible for China's economy to bounce back and gain momentum. With his rapid abandonment of the "zero COVID" policy, Xi has already shown his capacity for change. Chinese people have historically moved on from political upheavals rather than dwelling on them. A return to more sustainable economic practices might be made possible by this resilience.

The West has a stake in keeping China from experiencing a full-blown financial crisis. Given the size and significance of China's economy, a crisis of this magnitude would have profound effects on the entire world. The West should think about coordinating investment screening and export restrictions on prospective dual-use technologies to reduce hazards.


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