In a year of crises, China's severe floods exacerbate economic woes
This article first appeared in CNBC TV-18 on August 24, 2020 and can be accessed here
Last year, on a visit to the city of Chengdu, I took an afternoon off to visit Leshan, which is home to the largest and tallest stone Buddha in the world. To escape the crowds, my friends and I took a ferry, which allowed us to get an unencumbered view of the Buddha. The view was breath-taking, as we could see throngs of people gathering at the viewing station, below the statue, and then climbing up around it through staircases cut into the face of the cliff. I did not imagine that barely a year later, floodwaters would touch the feet of the giant Buddha. According to a local saying, “the city will be flooded entirely when the Giant Buddha's feet are flooded.”
The Chinese government has been trying to avert that crisis with Sichuan declaring the highest level of flood control response for the first time in history. In the neighbouring municipality of Chongqing (which is around the size of Austria), the government evacuated 2.5 lakh people, until floodwaters began receding last week. The army, local police, and firefights, along with party cadres and citizens have been working round the clock for the previous two months to help those affected by the floods.
Both Li Keqing and Xi Jinping have visited many flood-affected parts of the country over the last month. In Anhui province, Xi convened a symposium on the Yangtze River Delta, where he spoke of the importance of “high-quality development.” The floods which have been the most brutal the country has seen in over 80 years add to China’s exacerbating worries over its economy. While Chinese gross domestic production (GDP) shrank by 6.8 percent in the first three months of the year, its return to normalcy allowed the economy to grow by 3.2 percent in the second quarter. The trade war with the United States and the fallout from the pandemic has also seen other countries debate reducing the dependence of global supply chains on China. The unrest in Hong Kong is also witnessing a quiet withdrawal of foreign banks and possible capital outflow. The high rates of unemployment will further hit domestic spending, which has been one of the main reasons to drive up the GDP in previous years.
Manipulation of data and skewing of local statistics means that we do not know the whole extent of the Chinese economy. Beijing now finds itself in an economic fix as Anjana Trivedi describes it: “The crises of 2020, worse than any single natural disaster, confront Beijing with a dilemma. On the one hand, old-school fiscal pumping and railways to nowhere will boost short-term growth… On the other, the top brass knows that investments in high-tech infrastructure will pay off in coming years, helping fuel the current stock market rally. The uneven turnaround stems from unclear priorities: growth, debt, or the future economy? The numbers show as much.”
The Chinese Communist Party has been quick to point out the Chinese economy has been doing much better than most countries in the world. The government is trying to inject some vigour into the marketplace and placate investors that the country will weather through the multiple disasters it is facing this year. Whether this is rhetoric or actual policy is anyone’s call.