Economic analyst Milton Ezrati: The list of futile mega projects in China has led to waste of resources and accumulation of debt
The decline in the performance of the Chinese economy will disappoint the fear traders in America
Surveillance cameras in Huawei's corner at a security exhibition in Shanghai aimed at showing the great technical progress made by China.
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Chinese President Xi Jinping does not seem aware of what is currently happening to his country's economy.
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For several years, there has been a current in the world of American politics, economics, and media that promotes the danger posed by the strong economic growth of China, to become the second largest economy in the world after the United States, ahead of Japan and Germany.
But Milton Ezrati, a researcher collaborating with the Center for Human Capital Studies at the University of Buffalo in America, specializing in research activities, and chief economic analyst with Vested Communications in New York, believes that the next will frustrate the supporters of this camp, and they will not find many justifications to use to continue intimidating force Chinese economic.
At the beginning of an analysis published by the American National Interest magazine on its website, Ezrati said that the rules for regulating financial services in the world obligate companies operating in the field to constantly warn their clients that “past performance is not an indicator of future results,” because things are constantly changing, which is what It is highly applicable to the Chinese case now.
American concern
Ezrati added that a large part of the American concern about China was caused by its massive economic growth in the past.
Observers in the United States fear that this previous growth indicates the superiority of the Chinese economic model based on centralization and state control, compared to the American model based on the principles of free market economics, which seems democratic and chaotic.
These observers come to the conclusion that China will continue its strong growth to surpass the United States in material wealth very soon, which means Chinese hegemony over the world economically and militarily as well.
misleading vision
However, Ezrati believes that the economic vision of this perception is inappropriate and misleading, as the Chinese economy will slow down sharply compared to its previous growth rates.
And the authoritarian, top-down model of regulating the Chinese economy will create huge economic problems.
These problems are already starting to appear.
And Chinese President Xi Jinping does not seem aware of what is happening to his country's economy.
What is certain is that China's economic past is astonishing.
In the period between the late seventies, when the Chinese leader at the time, Deng Xiaoping, decided to adopt economic openness to the world, and until 2010, the Chinese real economy recorded a growth rate of about 10% annually, while the annual growth rate of the American economy during the same period did not exceed 2.8 %.
But after 2010, the growth rate of the Chinese economy slowed down, although it continued to outperform most of the large economies in the world, even in light of the emerging Corona virus pandemic.
Within a few decades, China jumped from one of the world's most backward economies, with a GDP equal to just over 3% of the US's GDP, to become the second largest economy in the world, accounting for more than 70% of the US GDP today.
China has become the world's largest manufacturing country, and by some standards it has become the world's largest trading country.
wrong assumption
However, it would be wrong to say that this record growth in China in any way reflects the superiority of the Chinese economic approach.
The previous growth of China was not the result of Chinese policies or systems, as the authorities there said, as much as it is a result of the growth phase that the country went through in the seventies when its economic growth began to increase, and the conditions were suitable for its centralized system.
All Chinese economic planners needed at the time was to look to the United States and other developed countries for guidance.
The future at that time was clear before their eyes.
But with the development of the Chinese economy and its catch-up with the advanced economies, the Chinese planners lost the models that guide them, and it is now incumbent upon them, like any advanced economy, to guess the future needs of their economy, which is a more difficult task for any planner and represents a great danger for a centrally planned economy, as is the case In China.
mistakes
Therefore, it was not surprising that China's economic planning errors increased.
Part of the problem stems from the fact that planners have struggled to adapt to the changing realities of the Chinese economy.
Instead of focusing on service sectors and other more advanced activities to continue economic growth, Chinese economic planners have continued to focus on development projects that initially brought growth, such as housing and infrastructure projects.
The result was that more than 20% of the housing units built in the country are still vacant.
There are modern roads and high-speed rail lines that serve almost no one.
The growing list of futile mega-projects in China has resulted in wasted resources and the accumulation of debts, both for the government and for big companies.
The most prominent example of this is the property giant Evergrande, which has defaulted on its debts and is facing the specter of collapse.
This scenario is repeated with many real estate companies in China, after years of government focus on housing projects without studying the actual needs of the market.
cumulative failure
The cumulative failure of China's economic planning is underlined by the accumulation of debts, whether on government, state-owned enterprises or even private companies.
The simple debt figures of the Chinese central government do not reflect the reality of the situation, in light of the accumulation of debts on regional governments and state-owned companies, as well as private companies, which have become a threat to economic stability as a whole in China.
During the second decade of the twenty-first century, China's total debt increased by about 23% annually, while the average growth rate of the economy during the same period was approximately 8%, which reflects the effects of the failure of economic planning.
Meanwhile, President Xi Jinping seems completely unaware of the growing economic difficulties facing his country.
While the late Chinese leader, Deng Xiaoping, may be said to have toned down the centralist approach of communist China's founding leader Mao Zedong, Xi appears to be seeking to reinvigorate this centralized approach and strengthen government control over economic activity.
Focus on the projects themselves
What is worse is that Chinese economic planners are still focusing on the same type of infrastructure projects that did well in the past, but are now highly questionable, given the developments in the Chinese economy over the past four decades.
It is unlikely that Xi will find it difficult to win a third term and secure his lifelong rule as he hopes.
However, the offending current may gain more strength as the failure of the current model accumulates.
And if Xi shows flexibility, China will manage to avoid wasting more resources and bypass related economic and financial hurdles.
But even if this happens, Beijing will not achieve the astonishing economic growth it recorded before, and may not succeed in overtaking the United States as the largest economy in the world. Fears about China's economic growth are no longer justified.
• Observers in the United States fear that this previous growth indicates the superiority of the Chinese economic model based on centralization and state control, compared to the American model based on the principles of free market economics, which seems democratic and chaotic.
• The authoritarian model based on top-down control in regulating the Chinese economy will create huge economic problems. These problems are already starting to appear.
• In a few decades, China jumped from being one of the world's most backward economies, with a GDP equivalent to just over 3% of the US GDP, to becoming the second largest economy in the world, equivalent to more than 70% of the US GDP today. .
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