22 Aug 2023 Christopher Arps: Unmasking China’s Paper Tiger Economy

Facade Hides Vulnerabilities That Undermine Nation’s Global Standing

An aura of invincibility has accompanied China‘s meteoric rise to becoming the world’s second-largest economy. Recent revelations, however, paint a different picture, revealing a troubled economic landscape that misrepresents the nation’s apparent might.

Christopher Arps

Beneath the surface, China‘s economy resembles a paper tiger — a facade of strength hiding vulnerabilities that threaten to undermine its global standing.

One glaring indicator of this paper tiger phenomenon is the Chinese government’s attempt to control the narrative surrounding its economy. Reports reveal that local analysts and foreign investment banks are being directed not to comment negatively on the economy.

This orchestrated effort to suppress criticism indicates that the authorities are aware of the economic challenges beneath the surface.

The cracks in China‘s economic armor are becoming more evident each day. Exports, once a formidable engine of growth, are now slumping. Producer prices have relentlessly declined over the past nine months, while consumer prices are flirting dangerously with deflation.

Adding to the gloom, youth unemployment has surged to a startling rate of over 21%, doubling in the last four years alone.

China’s National Bureau of Statistics has further eroded its credibility by ceasing to collect data on youth unemployment, a problem that has persisted for nearly a decade. Despite international media highlighting this issue, the Chinese government’s reluctance to acknowledge it only underscores their desperate attempts to maintain an image of stability.

“Zero COVID” measures have taken a toll on China‘s economy and are partly to blame for the nation’s stubbornly high youth unemployment. These measures induced volatility, which has made Chinese companies wary of hiring.

The interruption of education due to the pandemic has hindered students from securing internships that traditionally lead to job offers. This disrupted job market threatens to stifle economic recovery and growth.

China‘s housing and credit market bubble, once considered impervious, is showing alarming signs of deflation.

A string of defaults by major property developers, notably Evergrande Group, once the country’s second-largest property developer, has sent shock waves through the economy. Evergrande’s bankruptcy filing in New York marked a turning point, exposing the fragility of China‘s property market.

The housing market’s struggles are magnified by millions of unoccupied dwellings, reflecting the unsustainable expansion of real estate. Housing starts have plummeted, and local governments are grappling with financial difficulties due to slumping land sales. These red flags highlight the potential systemic risks of the housing market’s instability.

The Chinese economy’s descent into deflation is particularly concerning, given its reliance on speculative investments that fuel debt asset price bubbles. The erosion of purchasing power and decreased consumer spending pose severe threats to economic stability, underscoring the gap between appearance and reality.

While China‘s economic challenges have global implications, they also present opportunities. A struggling Chinese economy could lead to falling export prices, providing much-needed relief from inflation pressures. Lower international oil and food prices could stem from
China‘s downturn, offering potential economic benefits for other nations.

The once-mighty dragon that is China‘s economy is revealing itself to be a paper tiger, a mirage of strength concealing critical weaknesses. Government control over narratives, coupled with economic deterioration across various sectors, points to an economy on the brink.

The bursting of the housing and credit market bubble, coupled with mounting defaults, paints a stark picture of China‘s vulnerability.

As the world watches, China‘s journey from economic powerhouse to paper tiger is a cautionary tale about the perils of unsustainable growth and the importance of acknowledging and addressing underlying economic challenges.

Christopher Arps is a member of Project 21, the National Center for Public Policy Research’s Black leadership network, and a managing partner with Red Tail Strategies, a communications consulting firm. This first appeared at The Washington Times.