It's long been argued that China isn't growing nearly as fast as its official GDP numbers say. Unfortunately, those who make this argument tend to think that such it means the communist dictatorship is far more tenuous than it seems and that an agitated populace and civil society means the country is actually on the brink of social upheaval or even revolution. In fact, probably the exact opposite is true.
First of all, let's say the extreme China bears are right and that China has in fact been growing at merely 1 to 2 percent since 2014 or even 2013. They would almost certainly attribute this to a deflation problem which is much worse than acknowledged - a general decline in price levels across the economy.
The problem is, it's inflation that causes social unrest, not deflation - rising prices, not falling. Where are the bread lines in China? True, food prices have risen faster than other consumer prices, but nowhere near the double-digit tempo required to spark public demonstrations. China's not exactly ripe for an Arab spring.
The situation is similarly loose in employment, even with the massive job cuts soon coming down the pike. Traditionally, Beijing has been tense about economic growth because so many young Chinese were entering the workforce every year. But this changed around 2011 or 2012, when the working-age population peaked. A cause for alarm since then has been the striking fact that Chinese wages have risen considerably faster than Chinese productivity: a classic symptom of a tight labor market. This situation has worsened China's global competitiveness, as its workers' earnings continued to rise even as the real economic value they produced flatlined and, more recently, even fell.
Seen in this light, China's present economic woes are actually a welcome correction of imbalances that have accumulated for years, namely the disproportionate allocation of resources to the state sector, of which the SOEs are the linchpin, but which in fact comprise far more than these officially public entities, given that so many "private" companies are effectively fused to one degree or another with public interests and stakeholders. Together, this state and quasi-state portion of the economy employs perhaps a quarter to a third of the total workforce, yet commands perhaps 80 to 90 percent of all credit allocation. This distortion has finally reached breaking point: the labor and credit shortage in the purely private economy is literally screaming for some release of human and financial resources from the bloated state-driven economy which can no longer cannibalize it without taking down the whole house.
The good news for China, then, is that it's not suffering from scarcity but from misallocation: it has enough productive capacity but poor (financial) circulation and (economic) distribution. It thus follows that growth per se isn't the imperative in the "new normal" so much as how it's spread across the real economy. Depending on where you're situated in the vast system, the optimal right now could be slow growth, fast growth, no growth, or even downsizing.
The new normal, in other words, is already forcing China to rediscover its core socialist values. With inequality easily among the worst in the world - and especially pernicious because it's so intimately tied with corruption - the era of quasi-fascistic state capitalism or "red" capitalism has come to a well-deserved end, if not in reality yet then at least in ideology.
It's not a good time to be a billionaire or even millionaire in China: you're now expected to fall in line with a leadership that's unabashedly neo-Maoist in its leanings. Unfortunately, you have little cause to complain: you've had your time in the sun, you've acquired far more than the average citizen can still even dream of, and you're simply being told that money can't buy you influence like it used to. You may consider yourself too important to China's development to be put out to dry, and in your mind the party much prefers you stay put rather than emigrate and worsen the country's brain and talent drain; but as the party sees it you're only deluding yourself to think you're as indispensable to China as China is to you.
Instead, like the rest of Chinese society, it's time you simply shut up and behave yourself, and help the glorious party redistribute your goodies in faithful Marxist-Maoist fashion to the masses.
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