Xi’s China juggernaut runs into potholes on the road to prosperity

China has made some modest moves towards relaxing its quarantine rules, such as reducing isolation times, but it is concerned about abandoning them completely.

China’s vaccination rate is still low. About a third of the 260 million people over 60 have not had a third dose.

The government has failed to convince older citizens, many of them sceptical about instructions from the authoritarian regime, that the risks of vaccination outweigh the returns.

This is partly a self-inflicted wound since Xi failed to warn the Chinese people clearly that COVID-zero would one day have to be lifted and they should protect themselves by getting their shots.

Xi’s nationalism has also made things worse by preventing the importation of mRNA vaccines from the west, even though they are more effective than homegrown Chinese vaccines.

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The problem is clear but there is no quick way out of this bind.

It will take months to raise vaccination rates. If China suddenly relaxed all restrictions before protecting a much higher share of the aged population, it would trigger a new wave of the pandemic that would overwhelm its still basic hospital system.

The transition from COVID-zero is only one of many economic problems Xi faces.

China’s real estate sector, which was once one of the great drivers of its economic miracle, is now in deep crisis because it has built far too many new houses on borrowed money.

China’s largest apartment builder, Evergrande, defaulted at the end of last year and many ordinary investors are discovering that they have lost their deposits on off-the-plan purchases from stressed companies which cannot complete their projects.

The Chinese government this week announced a $US162 billion stimulus package to try to restore confidence in the sector.

After outperforming the world for decades, the Chinese economy is expected to grow just 3.2 per cent this year, according to the latest forecast from the Paris-based Organisation for Economic Cooperation and Development – slower than the US or Australia.

None of this suggests that the Chinese Communist Party state system is about to fall apart. Despite Xi’s recent turn to authoritarianism and nationalism, the country has enormous economic strengths and the regime has been adept at managing opposition.

But a period of slower Chinese growth and internal confusion has enormous consequences for Australia, both economic and political.

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Michele Bullock, the deputy governor or the Reserve Bank of Australia, warned two weeks ago that, “given China’s importance as a trading partner,” a further slowdown in China’s economy, especially the housing sector which consumes so much of our iron ore, “would have implications for Australia”.

On the other hand, China’s problems might have a geopolitical silver lining because a more humble Xi might want to focus on domestic issues rather than engage in wolf warrior diplomacy.

While China can often seem like an unstoppable juggernaut, it is far from invulnerable. It may well find that systems like Australia, with pluralism and democracy, can teach it some lessons.

Bevan Shields sends an exclusive newsletter to subscribers each week. Sign up to receive his Note from the Editor.

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