After Nearly 45 Years of Post-Mao Economic Growth, Chinese Economy Destined to Stagnate

President Xi at G20 summit

The Chinese economy has largely recovered from the long-term stagnation and public food crisis of the detrimental socialist regime of President Mao. In 1978, Chinese economic supervisor Deng Xiaoping implemented various economic reforms, revitalizing free-market agricultural production and sales. Xiaoping also strengthened Chinese foreign relations and developed a large-scale bulk trade network with the United States. Due to such capitalist policies, China avoided Soviet-style recessions – long term periods of sparse innovation and growth. Unlike the Soviet Union, China never focused solely on industrialization. Instead, the 1978 comeback caused China’s labor productivity to grow tenfold and established private firms that invested in the economy by generating growth and material goods. The Congressional Research Service notes that from 1978 to 2018 – an era commonly known as the Chinese Miracle – China’s gross domestic product increased by an astonishing 9.5 percent annually. 

While China remains a top nation in global economic standards, the nation is destined to stagnate in the near future. The Congressional Research Service mentions various issues in a 2019 report, highlighting Chinese struggles with fueling domestic innovation as well as foreign relations issues. 

In the past decade, Chinese-American relations have grown increasingly precarious, as tariff turbulence during the Trump era ignited initial trade concerns. However, recently, Chinese threats to annex Taiwan have resulted in an economic ‘chip war’ between the United States and China. China’s potential conquering of Taiwan would result in a virtual Chinese technology monopoly, since Taiwan produces north of 92 percent of microchips. According to The Atlantic, China’s invasion and seizure of Taiwanese microchip production would transform and empower the communist nation and consequently destroy an American monetary hegemony. Alternatively, a major military conflict between China and Taiwan could halt microchip production altogether, leading to an American economic crisis. Any American power loss would lower Chinese monetary debt to the U.S. and boost further growth. 

In desperate efforts to protect the American economy, the U.S. government has regulated chip exports to China, slightly rattling the Chinese technology market and restricting China’s military growth. In the midst of such dangerous power struggles, China cannot afford to blunder. The country’s economy cannot exist as an individual entity, for the nation still remains heavily reliant on the US. 

As President Xi begins a new term as president and continues to tighten his grip on China, he echoes his predecessors in attempts to unify the country under his rule. According to The New York Times, Xi’s process of “meld[ing] ethnic groups” fends off both economic and political opponents. The Chinese president’s desire to control the nation extends further to the economic extraction of wealth and the acquisition of private companies. In 2021, for example, the Chinese based multinational technology company, Huawei, lost insurmountable revenue due to its ties with the Chinese government. Speculation of possible Chinese backed corruption with the company alarmed the U.S. government, and America immediately implemented a variety of sanctions, cutting crucial hardware shipments to China. Such sanctions from the U.S. greatly jeopardize cumulative Chinese revenue and growth, so in order to maintain global superpower status, the People’s Republic of China must remain weary of U.S.-imposed obstacles. 

Additionally, if President Xi and the Communist Party of China continue to acquire large portions of high-value private companies, the resulting dips in decentralized, private growth opportunities threaten innovation. While the government developed an initial 2025 plan to boost domestic innovation and litigate stronger patenting and property laws, the Chinese administration has yet to take tangible steps. Lack of innovation alone could blow a major hole in the Chinese economy and inhibit long-term growth. 

In summary, China faces a variety of problems ahead. With the present war in Ukraine, rising energy and gas prices in Russia have caused further stress on Chinese productivity and manufacturing. But the two most pressing issues – tense foreign relations and reduced innovation – have kept the future of the Chinese economy uncertain. 

By Arjun Shah

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