The End of China’s

Economic Miracle

Adam Posen
President, PIIE
September 7, 2023

1750 Massachusetts Avenue, NW | Washington, DC 20036 | www.piie.com

A macroeconomic turning point for China
• A lasting shift in household and SME behavior
towards self-insurance and liquidity
• Caused by a jump in CCP arbitrary
interference in everyday commercial life
• Ending “no politics, no problem” since
Deng
• Resulting in lower investment and durable
goods consumption, more low-risk savings,
lower response to stimulus policies
• Could encourage Xi to further emphasize
SOEs and increase barriers, in turn further
encouraging exit
• Opportunity for US to shift from sanctions to
suction of capital (financial, tech, and human)
from PRC

The End of China’s Economic Miracle - Posen | 3

Economic Long COVID
Not a collapse of either economy or regime
• The financial and real-estate sector
problems coulc be surmounted as before, if
the political economy allows
• The problem is that it is no longer credible
for the regime to constrain itself from future
intrusions
• Sluggishness and immune response to
policy, leading to a less dynamic economy
• Other factors could offset the downshift in
trend growth temporarily, but not reverse
the basis
• The initial response to increased
authoritarianism is greater obedience due
to lack of options

The End of China’s Economic Miracle - Posen | 4

Accumulated savings during the pandemic: An international comparison with historical perspective
Francois de Soyres Dylan Moore Julio Ortiz / 5 Jul 2023, VoxEU
The End of China’s Economic Miracle - Posen 7
China is still on track to reach its economic growth target of around 5%, Chinese Premier
Lǐ Qiáng 李强 06/27/23 at the World Economic Forum’s Annual Meeting of the New Champions, more
commonly known as “Summer Davos,” in Tianjin. “From what we see this year, China’s economy shows a
clear momentum of rebound and improvement,” Li said.
Private Business Fixed Investment
Private investment as a share of GDP, four-quarter moving average
100

90

80

Start of Covid Covid reopening

70

60
percent

50

40

30 Average (2015-19)=44

20
Average (2020-23Q2)=26
10

Source: National Bureau of Statistics of China

Durable Goods Consumption
Durable goods consumption as a share of GDP
10

9
Covid Reopening
Start of Covid
8

7
percent

Average (2015-19) = 7.4

5
Average(2020-23Q2)=5.7

Source: National Bureau of Statistics of China

 percent

0
2
4
6
8
10
12
14
16
18
20

2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1

Source: People's Bank of China

2017 Q2
2017 Q3
Household Deposits

Average (2015-19)=7.9

2017 Q4
2018 Q1
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
moving average

2019 Q4
Start of Covid

2020 Q1
2020 Q2
2020 Q3
2020 Q4
2021 Q1
2021 Q2
2021 Q3
2021 Q4
2022 Q1
2022 Q2
Quarterly New Household Deposits in RMB as Share of GDP, 4-quarter

Average (2020-23Q2)=13.5
Covid reopening

2022 Q3
2022 Q4
2023 Q1
2023 Q2
A macroeconomic turning point for China
• A lasting shift in household and SME
behavior towards self-insurance and
liquidity
• Caused by a jump in CCP arbitrary
interference in everyday commercial life
• Ending “no politics, no problem” since
Deng
• Resulting in lower investment and durable
goods consumption, more low-risk savings,
lower response to stimulus policies
• Could encourage Xi to further emphasize
SOEs and increase barriers, in turn further
encouraging exit
• Opportunity for US to shift from sanctions
to suction of capital (financial, tech, and
human) from PRC

The End of China’s Economic Miracle - Posen | 15

Adam Posen
aposen@piie.com

1750 Massachusetts Avenue, NW | Washington, DC 20036 | www.piie.com