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China's leaders are under pressure as its economic growth falters

SCOTT SIMON, HOST:

Problems are piling up for the world's second-largest economy. China is going through faltering growth, deflation, a real estate crisis and now record unemployment among young people - 21.3%. How will China's leadership and the Chinese people react? We're joined now by Robert Daly. He's director of the Wilson Center Kissinger Institute on China and the United States. Thanks so much for being with us.

ROBERT DALY: Good to be back.

SIMON: Record youth unemployment, and now China's government announced that officials will no longer make such data public. What do you make of that?

DALY: They will no longer publish the youth unemployment statistics. And a lot of Chinese fund managers have also been told that they shouldn't say discouraging things about the state of the economy. China is in a bigger economic funk than it has been at any time, really, since it began reform and opening in 1978. We don't know how long it's going to last, but if it lasts much longer, if it persists through another year or so, the question is, at what point does economic dissatisfaction become social and political?

SIMON: Let me ask you first, what do you think is behind this economic slowdown?

DALY: There are a number of different factors. China, which has superb economists and economic planners, has known for a long time that it was going to be facing a secular or long-term slowdown in its growth as this model that the other Asian countries use when they were developing slows down - you know, manufacture for export, low wages, low environmental protections. That which is the foundation of China's economic miracle has essentially timed out.

So they've known for a long time that things were going to be slowing down. What they didn't know is that they were going to be hit by a trade war from the United States, increased diplomatic isolation, COVID and then a demographic crisis, which, again, they knew about. But it came about 10 years earlier than they thought. So this is a quadruple or a quintuple whammy.

SIMON: What's the demographic crisis?

DALY: The demographic crisis is that China, which we've all been accustomed to saying is the world's largest country, has not only been eclipsed by India - that itself is not the issue. The issue is that China's population is shrinking, and it is getting older. This is largely a result of China's long-standing policy of allowing Chinese families to only have one child per. You have an enormous number of now-retirees and pensioners whose lives have to be supported by a shrinking number of workers.

Again, the Chinese government knows about this. They've been encouraging young Chinese to have more children. They said no more one-child policy. You'll have a two-child policy. That didn't work. They went to a three-child policy. But young Chinese are voting with their marriageability, with their fertility. They're getting married late, if at all, and having one child, if any. And so this is really the final and perhaps most serious aspect of China's long-term economic challenge.

SIMON: Are the Chinese people are beginning to question the leadership of President Xi or the Chinese Communist Party? Because, after all, they were happy to take credit for China's economic ascendancy.

SIMON: There are many reasons to think that Chinese must be asking questions about the government's competence. The latter parts of the zero-tolerance policy for COVID that saw entire massive parts of the country shut down for months caused really a trauma that China hasn't recovered from yet. People became aware that the government's powers were absolute, could be capricious, that the government's surveillance capabilities had expanded. The Chinese people saw Xi Jinping stand up with Vladimir Putin on the eve of the invasion of Ukraine and declare a no-limits partnership.

Under Xi Jinping, the Chinese people have seen themselves become more isolated not only from America and the West, but from much of the rest of the world as well. And now the economic pressure is building. So it's reasonable to assume they'd be questioning the leadership. It's very hard to see that from the outside because this has gone from being an authoritarian to a nearly techno-totalitarian country. It's hard to get a grip on public sentiment.

SIMON: Any chance of unrest? I mean, most any other country with this set of circumstances, you would worry about that.

DALY: We don't really see it yet. And the Chinese government still has means at its disposal. The markets are calling for stimulus. The government is trying this in small increments, none of which has been sufficient yet. The way that many Chinese economists refer to this is that China has to return to reform and opening. But the hallmark of genuine reform has to be the relinquishment of power from the government to the markets. And no one in China thinks that that's going to be coming from Xi Jinping.

SIMON: Is there something to fear about a economically weaker China? Our economies are so deeply intertwined after all.

DALY: Well, China, the IMF thought, would account for 35% of global growth this year. And so if this slump deepens, it will have an impact on global growth with ripple effects around the world where China is very deeply involved. So it is now the case that, you know, if China sneezes, the world catches cold. So we need to keep track of that.

But the longer-term geostrategic question for the United States is, if China has to focus all of its attention on domestic, economic and possibly social and political matters, does that mean that it abandons some of its international ambitions that we've been so worried about? Will China dial it back in terms of its competition with the West to shape global order? That would be good news for the United States. So there's both promise and peril in all of this for us.

SIMON: Robert Daly of the Wilson Center. Thank you so much for being with us.

DALY: Thank you. Transcript provided by NPR, Copyright NPR.

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Scott Simon is one of America's most admired writers and broadcasters. He is the host of Weekend Edition Saturday and is one of the hosts of NPR's morning news podcast Up First. He has reported from all fifty states, five continents, and ten wars, from El Salvador to Sarajevo to Afghanistan and Iraq. His books have chronicled character and characters, in war and peace, sports and art, tragedy and comedy.