While there are issues with populism induced freebies, China's social welfare spent is anemic for the size of economy it is.
Almost all social welfare has been devolved to the state level, but state level spend and incentives are overwhelmingly spent on large capex projects that align with larger initiatives (eg. the EV price wars with dozens of SoEs jumping into the fray despite the overwhelming majority of the Chinese EV industry being won over by private sector BYD).
That's tens of billions of dollars of capex per province just on one initiative that has turned into a price war that is forcing central level intervention. It's the same misaligned incentive structures that lead to the construction boom and bust in during the 2015-20 period, the overzealous Zero COVID enforcement, and the subsequently haphazard end to Zero COVID.
Most provinces are heavily indebted and lack a robust enough capital market to raise from in the way you can get local and state bonds in the US, or municipal bonds in much of the EU.
The Xi admin's policies is the equivalent of America having Reaganism during the 1950s-80s. Reaganism was bad for the US, but at least the US had a higher human capital by the 1980s thanks to New Deal (1930s-1950s) and Great Deal (1960s-70s) policies for a generation.
The kinds of people who had sympathy for solving spatial inequality in China are no longer represented after Li's passing, and this kind of petulant opposition to welfare expansion with no data to show otherwise is what will trip up China longterm if something does not change in the next 3-5 years.
The kinds of policies being pushed by the Xi admin currently are similar to those from a decade ago, yet China is a much older society than it was 10 years ago, and as I pointed out elsewhere, a society where the median household is much poorer than it's peers at GDP per capita (and even significantly below in the case of Thailand).
This is the same point the Economist article is getting at - a country where 10-20 million people are earning European and American level salaries but with almost half a billion people with Indian or Vietnamese levels of household incomes is an underperforming society if spending cannot be unlocked because the bottom half of society is saving heavily for a rainy day due to a limited to nonexistent social safety net.
And now that most of China is at Thailand level ages, there just isn't much room for convergent development using an export model.
If a social safety net expansion comparable to the Great Deal isn't initiated by 2029-30, I truly cannot see how a 4-5% GDP growth rate can be sustained over a long enough time period to converge with a Japan, Korea, or Western Europe, let alone the US.
They do provide a safety net but you have to move into the cities. They can't afford to build a comparable one for the rural areas too as rural productivity is too low and they can't realistically induce skilled people to move into impoverished rural areas.
Even the urban safety net is gated behind getting an urban hukou which has income requirements and stable residency requirements - both of which are difficult for the bottom half of society becuase of the chicken-and-egg situation. But the added issue is migrants on a rural hukou do not want to give up their rural hukou because oftentimes this means losing the right to any rural landholdings they may have - which for someone earning Yuan 2,000 to 4,000 a month doing gig work on Meituan is basically their only appreciating asset if the local prefecture decides to say expand a road or create an LGFV and thus entitling them to some (relatively) decent compensation.
This is the crux of the issue. There are very table stakes reforms that the central and provincial can conduct to help alleviate inequality, yet the bulk of spending is essentially expended on capex investments or subsidizes, which while great for building high value industries aren't generating a significant number of jobs because those industries require a college education.
No provincial government will work on expanding a social safety net without it becoming a priority at the Central level because everyone wants to climb the ladder, and there just isn't much fiscal leeway to expand that without central intervention.
> They can't afford to build a comparable one for the rural areas too as rural productivity is too low
That didn't stop Thailand or Malaysia. They might not have the same GDP per capita as China, but the median household disposable income of both is significantly higher (1.5x in the case of Thailand and 2.5x in the case of Malaysia).
Unlike both Thailand and Malaysia, the central government in China has much more leeway to expand the welfare net if it was a priority.
Almost all social welfare has been devolved to the state level, but state level spend and incentives are overwhelmingly spent on large capex projects that align with larger initiatives (eg. the EV price wars with dozens of SoEs jumping into the fray despite the overwhelming majority of the Chinese EV industry being won over by private sector BYD).
That's tens of billions of dollars of capex per province just on one initiative that has turned into a price war that is forcing central level intervention. It's the same misaligned incentive structures that lead to the construction boom and bust in during the 2015-20 period, the overzealous Zero COVID enforcement, and the subsequently haphazard end to Zero COVID.
Most provinces are heavily indebted and lack a robust enough capital market to raise from in the way you can get local and state bonds in the US, or municipal bonds in much of the EU.
The Xi admin's policies is the equivalent of America having Reaganism during the 1950s-80s. Reaganism was bad for the US, but at least the US had a higher human capital by the 1980s thanks to New Deal (1930s-1950s) and Great Deal (1960s-70s) policies for a generation.
The kinds of people who had sympathy for solving spatial inequality in China are no longer represented after Li's passing, and this kind of petulant opposition to welfare expansion with no data to show otherwise is what will trip up China longterm if something does not change in the next 3-5 years.
The kinds of policies being pushed by the Xi admin currently are similar to those from a decade ago, yet China is a much older society than it was 10 years ago, and as I pointed out elsewhere, a society where the median household is much poorer than it's peers at GDP per capita (and even significantly below in the case of Thailand).
This is the same point the Economist article is getting at - a country where 10-20 million people are earning European and American level salaries but with almost half a billion people with Indian or Vietnamese levels of household incomes is an underperforming society if spending cannot be unlocked because the bottom half of society is saving heavily for a rainy day due to a limited to nonexistent social safety net.
And now that most of China is at Thailand level ages, there just isn't much room for convergent development using an export model.
If a social safety net expansion comparable to the Great Deal isn't initiated by 2029-30, I truly cannot see how a 4-5% GDP growth rate can be sustained over a long enough time period to converge with a Japan, Korea, or Western Europe, let alone the US.