Communist Party’s policies cast shadow over China’s economy

The Chinese government has taken an initiative to restore its glory. The local authorities have demanded that the industries use minimum energy and other consumptions. These immediate measures have helped the country to react to the sudden shortages positively.

The crisis began when one of the largest property giants across China Evergrande failed to hand over the completed flats to their clients and investors. One reason for the same is the inactivity of the company during the lockdown. Thus, hitting the smooth functioning of such companies along with the burden to keep the cash to meet its demands.

The net result after the fall of Evergrande was the steep decline in the housing sectors. As was Fantasia and Kaisa Group.

The consequence of the falling prices is that the companies are now forced to sell their flats and houses at a much lower price than the entire cost of construction. The financial hurdle that it creates to the companies is that the companies may be forced to take huge loans and bonds from the public and banks to meet their expenditures. The loans and bonds are required to be paid back in which the companies in China continues to make escapes.

The slowing down of the property and housing market is a wake-up call for China. If the trend continues, there shall be a decline in the attraction by the home buyers and flat owners to purchase the new homes. There is a popular belief in China that only owners of flats and expensive houses can get married and be a symbol of high prestige. Hence, lower prices mean a low level of status and symbol.

The Xi Jinping regime has initiated several proposals to help the loss in housing and property prices. However, the experts are closely monitoring the situation. Meanwhile China’s tech crackdown has proven to be a boon for Pakistan’s tattered economy, as it has prompted investors to hunt for new opportunities in South Asia. In 2021, more money poured into Pakistan’s budding technology sector than in the previous six years combined, with investors from the United States, Singapore, and the United Arab Emirates joining the influx. The crackdown that started a year ago when the Chinese regulators pulled the plug on the Ant Group’s IPO has left the foreign investors spooked. The fact that investors are willing to invest in a country like Pakistan which is perpetually in a state of chaos owing to a weak political government, an extremely interventionist military and a society mired in religious extremism, indicates that China’s sudden hostility towards foreign investors has left them in a disarray.

Since Xi Jinping assumed control of China, he has undertaken measures to reverse the trend of a market oriented system started by Deng Xiaoping in 1976 to create China’s economic miracle.

In February 2021, a web of new Communist Party regulations wiped $1 trillion from Chinese tech stocks. The CCP yanked China’s most prominent ride-hailing app, DiDi, from all of the country’s app stores in July, and the list goes on, with the CCP cracking down on both home-grown and foreign tech firms.

The CCP seeks complete control of the country’s economy, and Beijing’s main goal appears to be to develop a domestic consumption-based economy so that China is no longer reliant on other economies to grow. Even with growth markets like cryptocurrencies Beijing is trying to limit mining operations, and the government is developing its own cryptocurrency that will allow the state to track exactly what each customer spends their money on.

China had attracted international companies with favourable land and tax policies along with cheap labour, prompting them to move their factories to China. However, over the past few years an increasing number of foreign firms have withdrawn from China as a result of several factors. The low labour cost has been the most critical advantage of Chinese manufacturing in winning the global competition. But the labour costs have significantly risen in China while the per capita labor cost in South East Asia has been comparatively lower.

Since the US-China trade war started the US has increased tariffs on Chinese goods significantly making many multinational companies intend to relocate their supply chains out of China or reduce their dependence on China. The pandemic has also affected the global supply chain significantly.

The CCP run regime alters rules and policies at random, unable to offer a stable investment environment, and the investment process has become complex and fraught with obstacles.

The massive withdrawal of foreign investment has a significant impact on China’s economy. Foreign companies are holding the lifeline of the country’s first tier cities; among the megacities in China Guangzhou has more than 20000 foreign enterprises which accounts for more than 62 percent of the city’s total industrial output. In Shanghai foreign capital contributes to two-thirds of the total industrial output and upto 70% to Shenzhen’s economy. These foreign owned factories according to public records have contributed about 30 million jobs to China.