For nearly 40 years, China’s Communists have been relaxing their grip on the economy to make people richer.
The endgame, former leader Deng Xiaoping said in 1987, was to achieve “a medium standard of living.” That ambitious goal is now within reach — China will be “moderately prosperous” by 2020, says President Xi Jinping.
But the last mile of this ultra marathon could be the hardest. Growth is the slowest it has been in 25 years, debt levels are exploding, environmental degradation is widespread and income inequality is rising.
“Now is the most painful period” for the Chinese economy, Alibaba founder Jack Ma said at the weekend.
Millions of Chinese workers are losing their jobs as heavy industry declines, and China faces a huge bill to soften the blow of its move away from manufacturing toward services and consumption.
There have been plenty of winners in China’s rise to the world’s second biggest economy, from billionaire entrepreneurs to the millions who have been lifted out of poverty and now own Western, and Chinese, gadgets.
But the transition to an economic model that relies on technology and innovation, rather than the old playbook of state investment and exports, means many others are now losing out.
The sprawling, state owned enterprises that dominate Chinese industry, are the first target. Their losses are an enormous drain on the country’s finances. The steel industry, which employs about 3.8 million people, is operating at 67% capacity; to be profitable that rate needs to be near 85%.
Chronic overcapacity exists in many other sectors like coal, cement, other metals and glass. With slowing growth in China, and around the world, there’s no easy fix.
The Chinese government says 1.8 million jobs will be cut in the steel and coal sectors alone. That’s nowhere near enough, say economists at Societe Generale.
They estimate the capacity reductions so far announced are only 10% of what is needed across the whole industrial sector. And that means millions more jobs are likely to go.