China’s economy is heading for a “dead end,” says an academic

Anne Stevenson-Yang, co-founder of J Capital Research and author of Wild Ride: A Brief History of the Opening and Closing of China’s Economypointed out Beijing’s failures in an editorial in the New York Times on Saturday.

“Years of erratic and irresponsible policies, excessive Communist Party control and unfulfilled promises of reform have led to a deadlock in China’s economy, with weak domestic consumer demand and slowing growth,” she wrote. “The only way the Chinese leadership can see to get out of this hole is to resort to expanding exports.”

Stevenson-Yang predicted that this will lead to greater tensions with China’s trading partners as cheap manufactured goods continue to flood markets, while the Chinese people grow darker and the government becomes more repressive.

The root cause of China’s economic problems is the Communist Party’s excessive control, which will not go away, while its policies focused on creating more industrial capacity are counterproductive, she said.

Most economists have recommended that China’s leaders loosen their grip on the private sector and encourage more consumption, which would entail government reform – “and that is unacceptable,” she added.

The Tiananmen Square protests in 1989 represented an opportunity to liberalize government in response to the growing private sector that had emerged from economic reforms begun a decade earlier. But that would have weakened the power of the Communist Party, emphasized Stevenson-Yang.

“Instead, China’s leaders chose to shoot protesters, further tighten party control and rely on government investment to stimulate the economy,” she said.

In the decades that followed, China’s investment-driven growth aimed to appease people while its cheap exports kept prices low in the West. Meanwhile, debts piled up across China, and new infrastructure and housing went unused.

Now President Xi Jinping is running out of policy options, Stevenson-Yang warned, as Chinese consumers refuse to boost spending and China’s trading partners throw up more barriers to its exports. In fact, the Biden administration is poised to impose tough tariffs on a range of Chinese goods. Innovation won’t help either, as China’s economy is still based primarily on replicating existing technologies, she added.

“All this means that the era of ‘reform and opening-up’ that has transformed China and captivated the world since it began in the late 1970s has ended with a whimper,” she concluded. “Mao Zedong once said that in an uncertain world, the Chinese must ‘dig deep tunnels, store grain everywhere and never seek hegemony.’ That kind of siege mentality is coming back.”

China’s slowing growth, housing crisis, high youth unemployment and U.S. restrictions on key technologies have led to predictions of a so-called lost decade of stagnation. Looking at China’s aging population, veteran strategist Ed Yardeni said last year that the country could become “the largest nursing home in the world.”

But a leading China expert warned last month against such pessimism, saying it could lead the U.S. to become complacent.

“Although its growth has slowed in recent years, China is likely to grow twice as fast as the United States in the coming years,” wrote Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics Foreign Affairs

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