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Sensemaker: Beijing’s engine trouble

Sensemaker: Beijing’s engine trouble

What just happened

Long stories short

  • Three people were killed by a gunman in a shopping mall in Copenhagen.
  • President Zelensky said Ukraine would retake Lysychansk after Russian forces took the city to complete their occupation of Luhansk. 
  • July 4th festivities were cancelled in Akron, Ohio, following the shooting death of Jayland Walker, an unarmed Black man, as he fled police last Monday.

Must read: Matthew d’Ancona on what Boris Johnson knew about Chris Pincher (see below).

Beijing’s engine trouble

At least it’s wet in China. Unusually heavy rains have lowered demand for air conditioning, raised levels in hydropower dams and temporarily eased China’s reliance on foreign energy. But there’s not much else for Xi Jinping to celebrate as 

  • his zero Covid strategy continues to weigh on Chinese growth;
  • the traditional engines of the Chinese economy all sputter at once; and
  • Xi’s coronation as de facto president for life becomes a source of tension rather than celebration.

Unforgiving spotlights are being trained on the Chinese economy from all angles, not least by former Australian prime minister Kevin Rudd in his book, The Avoidable War, and last week’s The Backstory with Andrew Neil. Note: Rudd speaks Chinese, has spent 10 hours in one-on-one chats with Xi and chose him as the subject of his Oxford PhD. He sees four factors raining on Xi’s parade:

  1. Property: a domestic Chinese property crisis is taking the wind out of a sector that accounts for as much as 29 per cent of Chinese GDP.
  2. Techlash: a predictable hit to private sector growth from Xi’s ideologically-driven assault on China’s tech sector saw $2 trillion wiped from its collective market cap in the year to May.
  3. War: Xi and Putin have been joined at the hip since their “without limits” pact, signed in February, but the invasion’s effect on energy prices has been disastrous for the world’s largest energy importer.
  4. Zero Covid: having committed to a strategy of complete containment of the virus, Xi cannot backtrack – but zero covid has meant lockdowns for 373 million people in 45 cities accounting for about 40 per cent of GDP. 

Of these, the property crisis has the greatest potential to infect – and stall – the wider economy, and it’s a symptom of long-term trends that can only dent Xi’s ambitions. 

Sales of flats in new-build high-rises in China’s big cities were supposed to be the main engine of domestic demand-led growth this year. Instead they’ve fallen for 11 straight months in the sector’s worst downturn since property was privatised in the 1990s. Goldman Sachs reckons this could lower GDP growth by 1.4 per cent this year compared with official Chinese forecasts, Bloomberg reports. Add to that an expected 1.6 per cent hit from Covid, and Xi’s target of 5.5 per cent growth looks way out of reach. 

Why the sales slump? Partly because global inflation, exacerbated by the war, has driven up builders’ costs and thus the price of flats. But also because the great migration to Chinese cities from the countryside is levelling off as the population ages and the workforce shrinks.

A recent study for Australia’s Lowy Institute showed China’s working-age population peaked in 2014 and if UN projections are broadly accurate could fall by 200 million by mid-century. 

Labour force growth contributed 3 per cent of overall GDP growth in the 1980s. That has shrunk to zero. Productivity growth contributed 4 per cent per year in the 1980s, rising to 5 in the 90s. That has shrunk to 1 per cent. 

Xi offered the Chinese people a bargain: strong growth and better lives in return for total political subservience. It served him well as long as the economy delivered, but experts see annual growth falling as low as 3 per cent for the rest of the decade. 

“I suspect in the short term China can make a reasonably strong recovery because it can rely on heavy stimulus,” says Roland Rajah, lead author of the Lowy study. “[But] more Covid outbreaks and lockdowns would obviously scuttle the recovery… I expect China’s economy to slow substantially for structural reasons over the medium term.”

So: fewer new flats for China’s middle class, and less room for manoeuvre for their leader. These days that counts as good news.

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The Pincher scandal reveals the true tawdriness of Johnson’s government

Matthew d’Ancona

Sexual abuse is all about power. Michel Foucault is a better guide to Parliament now than Erskine May.


CAPITAL ECONOMY, BUSINESS AND FINANCE

Ukraine Marshall Plan
Ukraine hopes to start rebuilding before the war ends, but lacks the funds. Zelensky’s government has therefore sent a 2,000-page plan to an international donors’ conference taking place today and tomorrow in Lugano, where donor governments and agencies expect to come up with as much as $500 billion in pledged aid. Bloomberg says the EU expects to be on the hook for most of this. It will come with strings attached. In essence Ukraine will have to show it’s serious about anti-corruption and other reforms required for it to progress along the long path to EU membership. And of course $500 billion pledged is not the same thing as $500 delivered. But it’s worth remembering the original Marshall Plan, credited with saving western European democracy, came with US strings attached and was worth a total of $160 billion in 21st century dollars. 


TECHNOLOGY AI, SCIENCE AND NEW THINGS

Cargo bikes
Amazon UK is rolling out a fleet of electric cargo bikes from its Hackney hub in east London, to comply with strict new air quality rules in the city’s Ultra Low Emission Zone (ULEZ) and act as a pilot scheme with the potential to be rolled out elsewhere. Electric cargo bikes are catching on all over, for mail delivery in Germany, library book distribution in Portugal and street cleaning in Strasbourg, according to the NYT. Current UK government incentives for e-cargo bikes cover up to 40 per cent of the purchase price. Incentives are meanwhile being slashed for bigger, heavier EVs. 


The 100-year life health, education AND GOVERNMENT

Covid’s back 
Even with mandatory quarantine for anyone meeting Xi in Hong Kong – his first trip outside mainland China since January 2020 – a legislator who appeared in one of the group photos later tested positive for Covid. In the UK, where restrictions and face masks are but a faint memory as festivals and sports events return in full force, Covid is undeniably back. UK case numbers rose by 32 per cent last week and hospital admissions in England have doubled since the start of June. The UK Health Agency’s chief executive, Dame Jenny Harries, has warned those admissions are expected to rise further, impacting other hospital services. Omicron sub-variants BA.4 and 5 are believed to be driving the surge, but its scale is unclear because so few people are testing. “It’s like we’re driving fast in thick fog, and the brakes are failing,” a senior NHS consultant says. Booster vaccines in the autumn could help. Equally they may not be enough to prevent another winter surge.


Our planet CLIMATE AND geopolitics

Hot glacier
A section of glacier on the highest peak in the Dolomites fell off and killed at least six climbers at the weekend, as Italy endured a punishing heatwave and the ice that formed the Alps fights a losing battle with climate change. Temperatures at the top of the Marmolada peak reached 10 degrees C despite its 3,434 metre altitude. In Rome they reached 40C, the highest for any European capital. In addition to those confirmed killed, 20 climbers are missing. For a country dependent on tourism, this is no local matter. Mario Draghi, the prime minister, was heading to the scene today. 


CULTURE soCIETY, IDENTITY AND BELONGING

Yair Lapid takes over
Can a former media star convince the public he can be trusted with the top job? Yair Lapid took over as Israel’s interim prime minister last week, urging ministers to provide a “continuously functioning government” as the country heads towards its fifth election in less than four years. Lapid, 58, who has reportedly modelled his career in part on Boris Johnson, was a popular news anchor before launching his centrist political party a decade ago. He orchestrated the effort to oust Benjamin Netanyahu last year, but the unwieldy coalition collapsed just after its first anniversary in power. He now has four months to prove himself before facing Netanyahu at the ballot box in November.

The week ahead

UK 

4/7 – Keir Starmer addresses Centre for European Reform on Labour’s Brexit plan; barristers resume strike action over legal aid funding; High Court judgement due on Kellogg’s challenge to government’s high-sugar food rules; RHS Hampton Court Palace garden festival begins; RMT union AGM, 5/7 – Bank of England financial stability report due, 6/7 – Boris Johnson questioned by parliament’s liaison committee; Post Office Horizon IT system inquiry continues; Royal Society summer science exhibition starts, 7/7 – Deadline for government decision on new coal mine in Cumbria; annual memorial service for 7/7 bombings held in Hyde Park; Festival of Education held at Wellington College, 8/7 – Hinkley Point B nuclear plant due to be shut down, 9/7 – Wimbledon women’s final, 10/7 – Wimbledon men’s final

World

4/7 – International Ukraine recovery conference held in Switzerland; US celebrates Independence day; 5/7 – Third run of Large Hadron Collider since its restart in April, 6/7 – Rail workers to strike over pay levels in France; European parliament debates Northern Ireland Protocol legislation; running of the bulls festival in Pamplona; UEFA Women’s Euros begins with England playing Austria, 7/7 – Criminal trial continues for WNBA star Britteny Griner in Moscow for alleged drug smuggling; Muslims gather in Saudi Arabia to celebrate Hajj, 8/7 – Annual national Republican congressional committee retreat in Pennsylvania; verdict announced in corruption trial of Sepp Blatter and Michel Platini in Switzerland; US employment statistics, 9/7 – Eid al-Adha celebrated, 10/7 – Election of upper house representatives in Japan; parliamentary and municipal elections in Republic of the Congo

Thanks for reading. Please share this around and tell us what we’ve missed. News tips and story ideas are welcome. Email them to sensemaker@tortoisemedia.com.

Giles Whittell
@GWhittell

With additional reporting by Phoebe Davis and Jessica Winch.

Photographs Getty Images


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