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Xi Jinping struggles to patch cracks in the Chinese success story

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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?

And it is not just youth who are disenchanted. Shares in the Chinese property giant Evergrande lost more than 80 per cent of their value this week. Meanwhile, Evergrande’s competitor Country Garden, previously seen as safe, was struggling to avoid default.

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 case by 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 of instability 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.

 

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Minimum wage to hire higher-paid temporary foreign workers set to increase

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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.

— With files from Nojoud Al Mallees

The Canadian Press. All rights reserved.

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PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

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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.

The Canadian Press. All rights reserved.

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Statistics Canada says levels of food insecurity rose in 2022

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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.

The Canadian Press. All rights reserved.

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