Readers consuming the flood of media reports on the dire state of China over the last few weeks may be convinced that the country’s economy is doomed.
And perhaps not just the economy. China scholar Charles Burton this week offered the view that the leadership of Chinese autocrat Xi Jinping may itself be threatened as rising youth unemployment adds to popular disillusionment with the leadership in Beijing.
Burton, in an opinion piece for The Globe and Mail, reminds us that in 1930, as he was struggling to hold his revolution together against pessimists, Mao Zedong, the communist founder of the People’s Republic of China, quoted the Chinese proverb that “a single spark can start a prairie fire.”� Could disenchanted youth be a new spark for the next Chinese revolution?
The property sector accounts for 30 per cent of China’s economy. So citizens, mom and pop investors, and businesses hoping for a commercial rebound after the government’s draconian pandemic lockdown have been disappointed. Consumers are reconsidering spending plans as deflation begins to bite.
It’s all being framed by some as China’s Lehman moment, when trouble in the U.S. property market turned into the crash of Lehman Brothers, one of the world’s most influential banks, resulting in the 2008 collapse of the U.S. economy. Others are instead characterizing it as China’s Minsky moment — a similar phenomenon when excessive investment leads to a crash — caused in this caseby too much debt.
An aerial view shows 39 nearly completed buildings developed by China’s Evergrande Group marked for demolition in Danzhou, Hainan, China on Jan. 6, 2022. (Aly Song/Reuters)
Others yet are comparing it to the overinvestment by Japanese banks, supported by their government, causing what had been seen as the 1980s Japanese economic miracle to be transformed into its 1990s “lost decade.”
“We could possibly be at a crossroads where things could turn in a direction we haven’t seen for a while,” said Steve Tsang, director of the China Institute at the University of London’s School of Oriental and African Studies, in a phone conversation this week.
Most China watchers, including those I spoke to, stop short of expecting anything like a new Chinese revolution. But as Gordon Houlden, director emeritus at the University of Alberta’s China Institute, told me, accidents can happen.
‘Despotic capitalism’
After 30 years of spectacular market-led economic growth that raised living standards, based partly on a glut of public spending, the country is suffering from financial indigestion.
And while the whole world may have a similar malady, as outlined by commentator Martin Wolf in his recent book on the important links between politics and business, what he calls “China’s form of despotic capitalism” may be dangerously brittle.
“The move towards an Orwellian ‘Big Brother’ society, in which surveillance technology is employed by the party-state down to the very last individual, may work. But it is terrifying, threatening to crush the human desire for autonomy and self-expression,” Wolf wrote in The Crisis in Democratic Capitalism, published earlier this year.
BRICS members push for broader international role, expanded membership
Expanding the membership to BRICS — made up of Brazil, Russia, India, China and South Africa — is on the agenda as leaders from those countries meet in Johannesburg without President Vladimir Putin. The group is also lobbying for a bigger presence on the international stage.
“Arbitrary state power makes all private property insecure and so threatens the market economy.”
As Tsang and others have observed, China’s moment ofinstability arrives just as the structural advantages that powered its economic boom are waning. That includes new signs of a declining population.
“Instead of having a demographic bonus, it’s now starting to suffer from a demographic deficit,” said Tsang. “All the easy to reach fruits have been picked.”
Tsang says there are signs that the country may not attain the kind of economic growth that could complete its transition from a developing country into something more like high-income Japan, South Korea, Europe and North America. In other words, it will fail to break out of what is called the “middle income trap.”
Other advantages that sparked the boom and made the country the factory to the world are also disappearing, such as Western technical transfers and investment, says Tsang, as countries like Canada look for more reliable partners. Local government borrowing that spurred investment, including in the glutted housing sector, has reached a breaking point. And that retrenchment has damaged the enthusiasm that acted as a virtuous circle of new investment and spending.
“The real estate market… has a huge impact on people’s feel-good factor,” said Tsang. “Things that have been very beneficial to China are being turned on their heads.”
‘A thousand supposed collapses’
So, will the latest structural and property crisis lead to some sort of Chinese economic or political collapse? Gordon Houlden is skeptical.
“I’ve lived through a thousand supposed collapses of the Chinese economy and we’re not there yet,” said the longtime China watcher from Penticton, B.C., last week.
It is true that a Google search for news stories warning of China’s imminent Minsky moment shows they go back at least a decade.
As we’ve seen with the Canadian property market, in economics coverage, doom sells. And while major cracks in Canadian housing or the Chinese economy could still happen, it is reasonable to assume there will be more dire warnings than there are collapses.
“If you said the Chinese economy has got some serious structural problems — particularly debt, slower growth, aging population? Absolutely,” said Houlden. “Does this mean we are on the brink of some gigantic meltdown? I don’t think so.”
But can accidents happen? “Absolutely,” he said, and China and its leadership must overcome a list of difficult conundrums, including that its startling growth rates of more than 20 per cent were simply unsustainable. Inevitably, growth has declined.
“To me that’s simply coming back to real-world growth rates that are more or less the same as more mature economies,” said Houlden.
A woman wearing a face mask walks past a bank’s electronic board showing the Hong Kong share index in Hong Kong, on Aug. 10, 2022. (Kin Cheung/The Associated Press)
Broken promises
The issue, according to Burton and others, is that current and future rates of growth may not be enough to satisfy the “post-Tiananmen bargain” — a tacit agreement that popular agitation for more democracy was relinquished in exchange for a promise of government-led widespread prosperity. The endless boom is not turning out the way the Chinese people expected.
By that way of thinking, in order to keep its mandate to govern, the Xi-led government must struggle to prevent its economy from declining further, including by depending less on exports and creating a strong domestic consumer economy.
“That hasn’t worked out as well as they thought,” said Houlden, “partly because Chinese are prodigious savers, and when things get a little bit dicier, they save even more.”
Like Tsang, Houlden notes the effects of declining population that he says are unlikely to be reversed. Government spending, especially at the regional level, cannot continue at recent levels. Dependence on imports has proven hard to break. But he says China has advantages including that, unlike the U.S., its borrowing is domestic.
Houlden says he is not an optimist but a realist and that even at relatively low levels of growth, the enormous Chinese economy remains on track to exceed that of the United States over the next decade.
“I call it the ‘tyranny of the headlines.’ When we see indications of the Chinese economy slowing we say ‘Oh my God! Collapse! The miracle’s over.’ It’s not,” said Houlden.
Like Wolf, he thinks restricting information about the economy from the people trying to make the economy function, as we’ve seen with banning of youth employment statistics, is not productive. He says previous leaders assumed a strong economy required a more open economy and more widespread knowledge of how it was functioning.
“Xi is a different kind of cat,” said Houlden, but he says he sees a recent pullback on attempts to micromanage the economy.
“I think that there may have been some recognition by Xi and his advisers that there’s a risk that they can kill the golden goose by over-regulation,” he said.
Like Houlden, Tsang says Xi will be willing to make changes in the short term to try to get the economy back on track to growth.
“This guy is first and foremost focused on staying in power,” said Tsang pointing to Xi’s reversal on stringent lockdowns after widespread public demonstrations. “So if he sees those problems as potentially going to threaten his hold on power, he’ll make changes.”
But Tsang is worried that the kind of fixes Xi will be willing to try just won’t work, and if China’s economic downturn stretches out from months to a year or more, it will be very hard to disguise the fact that Xi’s economic strategy has failed.
“If and when that point is reached, Xi will turn to much harsher repression and xenophobia to stay in power,” predicted Tsang.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
