China’s economy has slowed down from its double-digit growth some years ago to just below 7 percent. There are even suggestions that real growth might be much lower, probably as low as half of that. At about 7 percent though, China’s economy is doing much better than most other countries. However, there are serious problems emerging and some of them were acknowledged by Chinese Premier Li Keqiang in his annual state-of-the-nation report to the NPC. For instance, talking of the economy in general, Li said in his report that: “Domestically, problems and risks that have been building up over the years are becoming more evident,” and as a result, “downward pressure on the economy is increasing.”
However, he maintained that, with appropriate adjustments, it would be possible for China to achieve an average annual growth rate of 6.5 percent in the next five years. So what are these problems? A major problem is that over the years some crucial industries have built up overcapacity that is weighing down the general economy. For instance, there is now a glut of coal, cement, steel and other industrial commodities. Even as these industries have created high levels of pollution, their profits have declined and some are even losing money. These and other industrial enterprises would need to be overhauled or closed, leading to massive job losses, and it is already happening. As Li said: “We will focus on addressing the overcapacity in the steel, coal and other industries facing difficulties. We will address the issue of ‘zombie enterprises’ proactively, yet prudently, by using measures such as mergers, reorganizations, debt restructurings and bankruptcy liquidations.”
In other words, the economy is set to undergo a severe shake-up and the resultant loss of jobs will no doubt cause social unrest. The legitimacy of China’s political system is largely based on an implied contract between the regime and China’s masses, where its people abide by the Chinese Communist Party’s (CCP) monopoly on power in return for a progressive improvement in their economic conditions. The government is not unaware of the social problems that might arise from the loss of millions of jobs and is setting aside about US$15 billion to support laid-off workers. However, such economic disruptions are never easy and inevitably cause social unrest.
Already, protests are happening in some regions and industries — mining for instance — over job losses and unpaid wages. The scale and management of such unrest will be an important challenge for the political system. The economic turbulence recently experienced by China’s stock market, affecting millions of small investors earlier encouraged by the government to make good money through this seemingly ever-expanding channel, is another example of the general malaise. At the same time, its exports sector, once an important source of economic growth, has slowed down, which has also caused unemployment.
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