SVET Reports
China SVET Review and Analysis
SVET Review
Political Review
The People’s Republic of China (PRC) is the world’s emerging superpower. However, it is also a country facing a growing number of economical, social, and ecological issues.
China’s GDP exceeds $11 trillion dollars, making it the second largest in the world after the US. Despite this, its rate of economic growth has sharply dropped to 6% in 2016 from 9% in 2013. The PRC has a highly centralized and government-managed economy, along with strictly regulated political life. Notwithstanding, some Chinese provinces are allowed to pursue independent economic policies.
China officially has a multi-party political system. However, in practice, there is only one party that holds significant power — the Communist Party of China (CPC), which was founded on July 1, 1921. The CPC’s ideology is based on the Marxist-Leninist doctrine introduced by Karl Marx (a Prussian economist) and Friedrich Engels (a German philosopher and businessman) in the 1880s. This doctrine was later supplemented by the theory of Socialism by Vladimir Ulyanov-Lenin (a Russian politician and revolutionary).
The doctrine postulates that society is composed of two major economic classes — the working people (exploited) and the bourgeoisie (exploiters). According to this theory, a global economic crisis will lead to a revolution, with the working class taking control of the world and the bourgeoisie being eliminated. Ultimately, capitalism will cease to exist, and communism (where goods are freely available and nobody works) will prevail. Mao Zedong, the founder of the CPC, adapted this theory to the Chinese context by including Chinese farmers in the definition of the working class.
The PRC government plays a central role in both the political and economic aspects of China. The CPC governs China through an administrative pyramid, with the Central Committee (Politburo) and the National Congress at the top.
The National Congress is comprised of over 2000 delegates who are elected mainly from local CPC committee members. This assembly convenes for a two-week session in Beijing once a year. The 22 Chinese provinces are managed by regional governors appointed by the Central Committee, and their primary objective is to fulfill the CPC’s goal of achieving GDP growth. The government operates based on five-year plans.
The list of other political parties in China includes:
Revolutionary Committee of the Kuomintang (53,000 members, representing Taiwan residents in China);
China Democratic League (130,000 members, mainly composed of the middle class);
China Democratic National Construction Association (69,000 members, consisting of entrepreneurs);
China Association for Promoting Democracy (64,000 members, primarily intellectuals);
Chinese Peasants’ and Workers’ Democratic Party (65,000 members, representing government employees);
Zhigongdang of China (15,000 members, representing overseas Chinese);
Jiusan Society (68,000 members, comprising individual professionals);
Taiwan Democratic Self-Government League (1,600 members, including prominent Chinese celebrities).
All of these parties are aligned with and support the CPC in its major initiatives and policies. Opposition to the CPC is not tolerated.
Economic Review
Administratively China consists of 22 provinces, 5 autonomous regions, 4 municipalities directly under the central government, and 2 special administrative regions.
China’s main economic regions:
Eastern Coastal Region: This region includes provinces like Guangdong, Jiangsu, and Zhejiang, as well as Shanghai. It has been a major driver of China’s economic growth due to its proximity to international trade routes and its well-developed infrastructure. The Eastern Coastal Region contributes approximately 45–50% to China’s GDP.
Western Region: The Western Region comprises provinces such as Sichuan, Chongqing, and Yunnan, as well as the Tibet Autonomous Region. This region is known for its rich natural resources, including minerals, energy, and agricultural products. The Western Region contributes around 15–20% to China’s GDP.
Central Region: The Central Region includes provinces such as Henan, Hubei, and Hunan. It is characterized by a mix of industries, including manufacturing, agriculture, and services. The Central Region contributes roughly 15–20% to China’s GDP.
Northeastern Region: The Northeastern Region consists of provinces like Liaoning, Jilin, and Heilongjiang. Historically, this region was a vital industrial base for heavy machinery, mining, and manufacturing. However, it has faced economic challenges in recent years. The Northeastern Region contributes approximately 7–10% to China’s GDP.
Pearl River Delta: The Pearl River Delta is a highly urbanized and economically dynamic region located in Guangdong Province. It encompasses cities like Guangzhou, Shenzhen, and Dongguan. Known as a manufacturing and export hub, it has played a pivotal role in China’s economic growth. The Pearl River Delta contributes around 10–15% to China’s GDP.
Yangtze River Delta: The Yangtze River Delta region covers Shanghai and the surrounding provinces of Jiangsu and Zhejiang. It is one of the most economically developed and prosperous regions in China. With a strong focus on finance, manufacturing, and services, the Yangtze River Delta contributes approximately 20–25% to China’s GDP.
China’s Latest Economic Updates
Stock Market
The Shanghai Composite rose from 2892 in November 2022 to 3284 (as of May 17, 2023).
Currency
Yuan rose from 6.7 in Jan 2023 to 7.0 as of May 17, 2023
Employment
In March 2023, China’s surveyed urban unemployment rate decreased to 5.3%, the lowest in seven months, from February’s 5.6%. Those aged 25–59 saw their jobless rate drop to 4.3% from 4.8% in February, while those aged 16–24 increased to 19.6% from 18.1%. The unemployment rate in 31 large cities and towns also declined to 5.5% from 5.7%.
Employees’ average weekly working hours across China increased to 48.7 in March from 47.9 in February. In the first quarter of 2023, the unemployment rate slightly declined to 5.5% from 5.6% in Q4 2022. The government has set a target of around 5.5% for the year, with the creation of approximately 12 million new urban jobs. China has also set a 2023 GDP growth target of about 5%.
GDP
China’s economy grew by 2.2% (SA) in Q1–2023, the third consecutive quarter of expansion following the removal of travel restrictions in Dec-2022 and a three-year crackdown on tech firms and property. However, the uneven recovery showed that while consumption, services, and infrastructure spending picked up, slowing inflation and rising bank savings led to doubts about demand.
In Mar-2023, the central bank cut lenders’ reserve requirements for the first time in 2023 and Beijing promised more fiscal stimulus.
Inflation
In April of 2023, China’s inflation rate declined to 0.1% from the previous month’s 0.7%, which was lower than anticipated. The decrease in prices for both food and non-food items was due to an unstable economic recovery after the enclosure policy was lifted. Food prices fell notably due to lower prices of pork and fresh vegetables, while non-food prices fell due to lower prices for transportation and housing. Inflation for health remained steady, while education costs increased.
Trade
Country’s exports rose unexpectedly by 14.8% YoY to a high of USD 315.59B in March 2023, rebounding sharply from a 6.8% drop in January-February combined and beating market consensus of a 7% fall. It was the first advance in shipments since September 2022 as Beijing boosts trade with developed countries and emerging economies. Steel products (53.2%) and refined products (35.1%) were the largest contributors. Exports to China’s largest partner, ASEAN, rose 35.43%, while those to the EU (3.38%) and Russia (136.43%) also increased. Conversely, exports fell to Japan (-4.8%), Taiwan (-27.6%), and the US (-7.68%), while they expanded to Australia (23.7%) and South Korea (11.3%).
SVET Analysis
Space (A-):
Advantages:
Strategic location: China is located in the heart of Asia, which gives it a strategic location to engage in trade and diplomacy with neighboring countries. China also has access to the Pacific Ocean, which allows it to trade with countries in the Americas and Oceania.
Natural resources: China has significant reserves of coal, iron ore, and other minerals. The country is also the world’s largest producer of rare earth elements, which are essential in the manufacturing of high-tech products. This resource base has fueled China’s economic growth over the past few decades.
Agricultural productivity: China has a large and fertile agricultural base, which allows it to produce significant amounts of food. The country is the world’s largest producer of rice and wheat, and it has made significant advances in crop yields through the use of technology and modern farming practices.
Disadvantages:
Natural disasters: China is prone to natural disasters such as earthquakes, floods, and typhoons, which can cause significant damage to infrastructure and disrupt the economy.
Resource depletion: China’s rapid economic growth has led to the depletion of some of its natural resources, such as water and arable land. This depletion can lead to environmental degradation and food insecurity in the future.
Energy dependence: Despite having significant reserves of coal, China is also heavily dependent on imported oil and gas to meet its energy needs. This dependence makes the country vulnerable to supply disruptions and price fluctuations on the global market.
Voice (C):
Pluses:
Stability: The Chinese government prioritizes maintaining stability and order in the country, which has helped to ensure social cohesion and economic growth.
Economic development: China’s political system has enabled it to pursue policies that have led to rapid economic growth and development over the past few decades.
Nationalism: The Chinese government emphasizes the importance of national unity and pride, which has helped to foster a strong sense of identity among Chinese citizens.
Strategic planning: The government’s focus on long-term planning has enabled China to achieve its ambitious economic and geopolitical goals.
Minuses:
Lack of political freedom: The Chinese government tightly controls political expression and restricts freedom of speech, assembly, and association, which has led to criticism from human rights groups.
State control: The government’s control over the economy and key industries can stifle innovation and limit the potential for private sector growth.
Lack of transparency: The Chinese government is known for being opaque in its decision-making processes, which can lead to uncertainty for businesses and investors.
Human rights violations: The government’s policies towards ethnic minorities, such as the Uighur population in Xinjiang, have been criticized by the international community for alleged human rights abuses.
Ethos (B-):
Han Chinese: The Han Chinese are the largest ethnic group in China, accounting for over 90% of the population. They enjoy the most favorable treatment from the government and have access to the best jobs, education, and healthcare. However, this has led to some resentment from minority groups who feel marginalized.
Ethnic minorities: There are 55 recognized ethnic minority groups in China, including Tibetans, Uighurs, Mongolians, and others. They often face discrimination and limited opportunities for advancement. Some minority groups, such as the Uighurs in Xinjiang, have also been subject to government repression.
Rural residents: China’s rural population is around 40% of the total population. They often have limited access to education, healthcare, and job opportunities compared to urban residents. However, the government has implemented policies to try to bridge this gap, such as investing in rural infrastructure and offering subsidies to farmers.
Urban residents: China’s urban population is growing rapidly and has access to more job opportunities, education, and healthcare than rural residents. However, this has also led to increased competition for resources and rising income inequality.
Time (B-):
Positive scenarios:
Continued economic growth: China’s economy has been growing rapidly over the past few decades, and it is likely to continue. This could result in increased prosperity and an improved standard of living for many Chinese citizens.
Technological advancement: China has made significant strides in technology and innovation, and this trend is likely to continue. This could result in China becoming a global leader in technology, creating new industries and high-paying jobs.
Improved infrastructure: China has been investing heavily in infrastructure, such as high-speed rail and new airports, which can improve transportation and connectivity and stimulate economic growth.
Increased global influence: As China’s economy and political influence continue to grow, it could become a dominant player on the global stage, shaping international politics and economics.
Negative scenarios:
Environmental degradation: China’s rapid economic growth has resulted in severe environmental problems, such as air and water pollution. If this trend continues, it could have severe consequences for public health and the environment. Social inequality: China’s economic growth has also created significant social inequalities, with a wealthy urban elite and a poorer rural population. This could result in social unrest and instability.
Political repression: The Chinese government’s increasing control over the media and the internet, and its crackdowns on dissent, could result in greater political repression.
Economic slowdown: China’s economic growth has already slowed in recent years, and if this trend continues, it could result in job losses and economic instability, which could have global consequences.
Overall
The Chinese reforms were initiated by Deng Xiaoping (1978–1992) in the late 1970s. These reforms aimed to open up China to foreign investment, encourage private enterprise, and modernize various sectors of the economy. As part of these reforms, the number of directly controlled industries was drastically reduced. Additionally, the number of price-controlled goods decreased from approximately 300 to around 20.
With that said, the government still exercises strict regulatory oversight and establishes guidelines and policies that private businesses must adhere to. State-owned enterprises (SOEs) continue to play a significant role in the Chinese economy and frequently receive preferential treatment and support from the government.
Those policies were continued under Jiang Zemin (1993–2003), during which China was accepted into the World Trade Organization (WTO) on December 11, 2001, and also under Hu Jintao (2003–2013). However, when Xi Jinping (2013-present) assumed power, there was a gradual shift towards increased direct control over the economy and the establishment of a more centralized system. This change was accompanied by the active implementation of mass-surveillance technologies.
That happened synchronously with the end of the world’s latest 80-year-long generational cycle, which began in the 1940s and 1950s. This cycle was characterized by massive political decentralization, resulting in the emergence of several dozen new states between 1940 and 2000. After the 2007–2008 debts debacle, this cycle of economic expansion, driven by the exploitation of readily available resources, came to a close. However, it was artificially extended for the next 15 years through the easing of monetary policies pursued simultaneously by central banks worldwide.
That led to an unprecedented growth of private businesses worldwide. It was accompanied by increased prosperity and a rising level of education across all segments of the population. Small and medium-sized entrepreneurs, particularly in the high-tech industry, began to assume leading positions in the economic landscape. However, this economic progress was not accompanied by significant political reforms.
The old class of hereditary, mostly populist politicians, who often lacked education, managed to stay in power throughout that period, largely due to the outdated electoral system based on indirect political representation. However, when blockchain technologies were utilized to establish algorithmic consensus and enable effective direct governance, this new system faced resistance from entrenched political clans in all countries, resulting in its suppression.
China is currently at the forefront of this trend, with its political class focused on leveraging high-tech advancements to achieve both economic efficiency and comprehensive political control. However, there are two significant obstacles that China faces along this path.
Firstly, China is confronted with a shrinking population. In recent years, the country has undergone a substantial demographic shift characterized by an aging population and a decline in the working-age population. This is partially attributed to the one-child policy that was enforced from 1979 to 2016, resulting in a diminished labor force and a growing proportion of elderly individuals.
Secondly, there is a culmination of the resource-exploration and expansionist phase of global economic growth, accompanied by escalating political and military tensions worldwide. This situation is likely to result in a reduction of China’s import markets and an increased dependence on a less-competitive domestic market. Consequently, this could potentially lead to a scenario of stagflation, characterized by stagnant economic growth coupled with high inflationary pressures.
Faced with these fundamental challenges, it is highly probable that China will resort to aggressive and militaristic policies in an attempt to expand its territory directly or enforce its economic dominance in the Asian region through alternative means.
China is expected to continue on its trajectory towards increased global dominance through local conflicts and enhanced technological control over the economy and population over the next 15–20 years. However, this trend could be altered by a new wave of decentralization, which would require a significant deviation from current policies.
Such a shift may occur when not only the current generation of older politicians, but also the subsequent one (which is likely to further reinforce the existing trend), is replaced by “enlightened” technocrats who advocate for a return to decentralized approaches in both politics and economics.