In the early 2010s, the economist Justin Lin Yifu, a former World Bank chief official with ties to the Chinese government, predicted that China’s economy would have at least two more decades of growth above 8%. He reckoned that since the country’s per capita income at that time was about the same level as Japan’s in the 1950s and South Korea’s and Taiwan’s in the 1970s, there was no reason China could not replicate the erstwhile successes of these other East Asian states. Lin’s optimism was echoed by the Western commentariat. The Economist projected that China would become the world’s biggest economy by 2018, surpassing the United States. Others fantasized that the Communist Party would embark on an ambitious programme of political liberalization. The New York Times’s Nicholas Kristof wrote in 2013 that Xi would ‘spearhead a resurgence of economic reform, and probably some political easing as well. Mao’s body will be hauled out of Tiananmen Square on his watch. Liu Xiaobo, the Nobel Peace Prize-winning writer, will be released from prison’. The political scientist Edward Steinfeld likewise argued in 2010 that China’s embrace of globalization would kickstart a process of ‘self-obsolescing authoritarianism’ resembling that of Taiwan in the 1980s and 90s.
Ten years later, the naivety of these forecasts is apparent. Even before the onset of Covid-19, the Chinese economy had slowed down and entered a domestic debt crisis, visible in the collapse of major real estate developers like Evergrande. After Beijing lifted all pandemic restrictions in late 2022, a widely anticipated economic rebound failed to materialize. Youth unemployment spiked at above 20%, surpassing that of every other G-7 nation (another estimate put it at above 45%). Data on trade, price, manufacturing and GDP growth all point to deteriorating conditions – a trend that fiscal and monetary stimulus has failed to reverse. The Economist now claims that China might never catch up with the US, and it is universally acknowledged that Xi is no liberal, having redoubled state intervention in the private sector and foreign enterprises while silencing dissenting voices (including those that had previously been tolerated by the Party).
It would be wrong to think that external factors have radically altered China’s prospects. Rather, the country’s gradual decline started more than a decade ago. Those who closely analysed the data, beyond the buzzing business districts and flashy building developments, detected this economic malaise as early as 2008. Back then, I wrote that China was entering a typical overaccumulation crisis. Its booming export sector had raked in a huge amount of foreign reserves since the mid-1990s. In its closed financial system, exporters must surrender their foreign earnings to the central bank, which creates equivalent RMB to mop up the foreign currencies. This led to the rapid expansion of RMB liquidity in the economy, mostly in the form of bank loans. Because the banking system is tightly controlled by the party-state – with state-owned or state-connected enterprises serving as the fiefdoms and cash cows of elite families – the state sector enjoyed privileged access to state bank loans, which were used to fuel an investment spree. The result was rising employment, a temporary and localized economic boom, and a windfall for the elite. But this dynamic also left behind redundant and unprofitable construction projects: empty apartments, underused airports, excessive coal plants and steel mills. That, in turn, resulted in falling profits, slowing growth and worsening indebtedness across the main sectors of the economy.
Throughout the 2010s, the party-state periodically undertook new lending in an attempt to arrest the slowdown. But many enterprises simply took advantage of easy bank loans to refinance their existing debt without adding new spending or investment to the economy. These companies eventually became loan addicts; and as with any addiction, increasing doses were needed to generate diminishing effects. Over time, the economy lost its dynamism as zombie enterprises were kept alive through debt alone: a classic case of the ‘balance-sheet recession’ that roiled Japan after its boom ended in the early 1990s. Yet just as these woes became increasingly clear to insiders in the early 2010s, they were censored in official media, which amplified Lin’s upbeat assessment. Meanwhile in the Western world, a web of Wall Street bankers and corporate executives had reason to suppress more sceptical analyses, as they continued to profit off luring investors into China. The illusion of limitless high-speed growth thus ruled the day at the very moment when the economy entered its most serious crisis since the outset of the market reform era.
Beijing has long known what must be done to alleviate this crisis. An obvious step would be to initiate redistributive reform to boost household income and hence household consumption – which, as a share of GDP, has been among the lowest in the world. Since the late 90s, there have been calls to rebalance the Chinese economy in favour of a more sustainable growth model, by reducing its reliance on exports and fixed asset investment like infrastructure construction. This led to some reformist, redistributive policies under the Hu Jintao and Wen Jiabao government of 2003–13, such as the New Labour Contract Law, the abolition of agriculture tax, and the redirection of government investment to inland rural regions. But the weight of vested interests (state enterprises, as well as local governments thriving on construction contracts and state bank loans fuelling those projects), and the powerlessness of social groups who stand to benefit from such rebalancing policy (workers, peasants and middle-class households), meant that reformism did not take root. The minimal gains in inequality reduction in the Hu–Wen period were duly reversed after the mid-2010s. More recently, Xi has made clear that his ‘common prosperity programme’ is not a return to the egalitarianism of the Mao era, nor even a restoration of welfarism. It is, rather, an assertion of the state’s paternalistic role vis-à-vis capital: increasing its presence in the tech and real estate sectors, and aligning private entrepreneurship with the broader interests of the nation.
The party-state has been bracing itself for the social and political repercussions of this dire situation. In official policy speeches, ‘security’ has become the most frequently uttered word, eclipsing ‘economy’. The current leadership believes that it can survive an economic downturn by tightening its control over society, eradicating autonomous elite factions, and adopting a more assertive posture on the international stage amid rising geopolitical tension – even if such measures serve to aggravate its developmental problems. This helps to explain the abolition of the presidential term limits in 2018, the centralization of power within Xi’s hands, the relentless campaign to root out Party factions in the name of anti-corruption, the construction of a growing surveillance state, and the shifting basis of state legitimation: away from the delivery of economic growth and towards nationalist fervour. The current weakening of the economy and hardening of authoritarianism are not easily reversible trends. They are, in fact, the logical outcome of China’s uneven development and capital accumulation over the last four decades. This means they are here to stay.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.