Xi Jinping struggles to patch cracks in the Chinese success story

Readers consuming the flood of media reports on the dire state of China over the last few weeks may be convinced that the country's economy is doomed.

And perhaps not just the economy. China scholar Charles Burton this week offered the view that the leadership of Chinese autocrat Xi Jinping may itself be threatened as rising youth unemployment adds to popular disillusionment with the leadership in Beijing. 

Burton, in an opinion piece for The Globe and Mail, reminds us that in 1930, as he was struggling to hold his revolution together against pessimists, Mao Zedong, the communist founder of the People's Republic of China, quoted the Chinese proverb that "a single spark can start a prairie fire." Could disenchanted youth be a new spark for the next Chinese revolution?

And it is not just youth who are disenchanted. Shares in the Chinese property giant Evergrande lost more than 80 per cent of their value this week. Meanwhile, Evergrande's competitor Country Garden, previously seen as safe, was struggling to avoid default. 

The property sector accounts for 30 per cent of China's economy. So citizens, mom and pop investors, and businesses hoping for a commercial rebound after the government's draconian pandemic lockdown have been disappointed. Consumers are reconsidering spending plans as deflation begins to bite.

It's all being framed by some as China's Lehman moment, when trouble in the U.S. property market turned into the crash of Lehman Brothers, one of the world's most influential banks, resulting in the 2008 collapse of the U.S. economy. Others are instead characterizing it as China's Minsky moment — a similar phenomenon when excessive investment leads to a crash — caused in this case by too much debt. 

Others yet are comparing it to the overinvestment by Japanese banks, supported by their government, causing what had been seen as the 1980s Japanese economic miracle to be transformed into its 1990s "lost decade."

"We could possibly be at a crossroads where things could turn in a direction we haven't seen for a while," said Steve Tsang, director of the China Institute at the University of London's School of Oriental and African Studies, in a phone conversation this week.

Most China watchers, including those I spoke to, stop short of expecting anything like a new Chinese revolution. But as Gordon Houlden, director emeritus at the University of Alberta's China Institute, told me, accidents can happen.

After 30 years of spectacular market-led economic growth that raised living standards, based partly on a glut of public spending, the country is suffering from financial indigestion. 

And while the whole world may have a similar malady, as outlined by commentator Martin Wolf in his recent book on the important links between politics and business, what he calls "China's form of despotic capitalism" may be dangerously brittle.

"The move towards an Orwellian 'Big Brother' society, in which surveillance technology is employed by the party-state down to the very last individual, may work. But it is terrifying, threatening to crush the human desire for autonomy and self-expression," Wolf wrote in The Crisis in Democratic Capitalism, published earlier this year. 

"Arbitrary state power makes all private property insecure and so threatens the market economy."

As Tsang and others have observed, China's moment of instability arrives just as the structural advantages that powered its economic boom are waning. That includes new signs of a declining population.