China’s inability to “do the right thing” during the trade war with the United States could cost the country dearly according to Minxin Pei a professor of government at Claremont McKenna College.
“So far, it shows that China is not taking the opportunity to do the right thing,” says Pei. “China is willing to make some concessions by buying more good, perhaps also improve intellectual property protection, but that does not improve China’s economy structurally.
According to the professor, China’s firm grip on the economy will eventually backfire and could potentially cause the worst Chinese recession in recent Chinese history.
“It is natural for the economy to go through a boom or bust cycle… China has been trying to avoid this cycle, so it has built a lot of distortion. There is no free lunch. Someday, some people will have to pay. History shows that the bust will come – the longer you delay, the bigger the cost it will be. The next recession will become the worst in recent Chinese history.”
Pei believes that China is unable to loosen its grip on the economy or curtail the State sector because it is not ready to make political changes.
“These economic changes will involve radical political changes. For example, if the Chinese Government loosens its grip on the economy, the Communist Party will employ fewer people – millions of people may lose their jobs in the state-owned enterprises.”
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According to Pei, the problem is State control, and the Communist government is refusing to give up any form of its political grip.
China, according to Pei, grasped the opportunity in late the 1990s when the country’s economic growth slowed significantly after the Asian financial crisis as it shut down inefficient state-owned enterprises and joined the World Trade Organisation. However, the case will be different this time, he said. In late the 1990s, China had a much younger demographic structure, labor costs were lower, and the debt level was also significantly less, while externally, the relationship with the US was much less hostile, explained Pei.
Further, according to Pei, China and the United States have not reached the level of the Cold War relationally; however, it is not likely that the two will return to the age of engagement.