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China: Risks to watch for 2023 and beyond 

Large wave crashing

“...we must... get ready to undergo the major tests of high winds and

rough waves, and even perilous, stormy seas...”

President Xi, Ji Ping – June 2023 



Understanding the risks associated with the Chinese economy has become paramount for investors, businesses, governments, and other stakeholders. China's rise as a global economic powerhouse that impacts international markets in every sector and industry, necessitates comprehensive ongoing risk assessment. Conducting accurate economic ‘risk assessments’ on China is notoriously challenging however due to difficulties in obtaining reliable data, vested and politicised viewpoints, and the inherent complexities of the Chinese political economy. 

This abridged George James Consulting (GJC) report touches on a range of current and emerging risks to the Chinese economy that are worth watching through 2023 and beyond. It is recommended that this be used for informational purposes and that further research be undertaken as required on specific risk topics. 

City in China at night

A significant downturn in the real estate sector in China 


The real estate sector in China has experienced a period of rapid growth over the last twenty years fueled by significant volumes of speculative investment. Millions of Chinese citizens have invested heavily in real estate as their primary source of household wealth. This arguably peaked around 2017 leaving major cities such as Beijing, Shanghai, Shenzhen, and Guangzhou with astronomical property prices. 

In 2017, and in response to the clear risks emerging in the real estate market, the Chinese government implemented a number of measures to cool the market. This included purchase restrictions, increased down payment requirements, and tighter lending practices. By early 2019, there were initial signs of slowing demand for property in China. This occurred against the backdrop of a general economic slowdown across China. 

The COVID-19 pandemic then emerged in 2020 resulting in the temporary halt in property transactions and construction activities across China. Real estate valuations began dropping and reporting surfaced about over leveraged Chinese households. It seemed evident that the Chinese real estate market had become overinflated and was slipping towards a bust cycle. 

According to the Nomura Group, as of June 2021, the Chinese property development sector had accumulated RMB 33.5 trillion (US$5.2 trillion) in debt. A significant milestone was news that Evergrande Group, one of China's largest property developers, was at risk of defaulting on its $300 billion of liabilities. The Evergrande case attracted considerable media attention and sparked fears of wider contagion in the Chinese real estate market and Chinese economy. 

Other companies such as Sinic, E-House, Kaisa Group, Central China Real Estate, Xinyuan, Shimao, R & F Properties, China Vanke were also found to be alarmingly exposed and subsequently lost between 30 – 90% of their share value. Other cases such the Fantasia Holdings Group highlighted the existence of large private bond markets in China circumnavigating regulation

In 2022, the Chinese government reiterated its ongoing concerns with the sector and the need for further support and regulation. This included the People's Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission’s (CBIRC) notice to support failing property companies and strengthened borrowing requirements to reduce excessive debt and speculation. Despite these efforts to rescue the sector and achieve a ‘soft landing’, there appears to be increasing recognition within the Chinese government of the inevitably of defaults and consequently the need to ‘manage the risks’ rather than achieve ‘stability’. 

It is anticipated that the Chinese government will revisit the issue in 2023 and introduce more support packages for the Chinese real estate industry. That said, it also seems likely that there will be a greater level of tolerance for the failure of some real estate developers. In real terms may mean the complete collapse of some developers in the broader attempt to create a more sustainable Chinese real estate sector going forward. 

Housing in China

Ongoing tension and strategic rivalry with the United States

The relationship between the worlds two largest economies, the United States and China is crucial for both nations. The current tensions and increasing geo-political rivalry between China and the US is hence an important indicator for the Chinese economy. This relationship could also be described as a ‘key risk’ for the Chinese economy and should be carefully watched. A high level summary of the US/China relationship over the last twenty years is as follows: 

2003-2008: Under the Presidency of George W. Bush and Chinese President Hu Jintao. The Bush administration pursued a policy of engagement with China, seeking to encourage China's integration into the global economic and multilateral political systems. Bilateral trade between China and the US expanded significantly during this period despite US criticism of China for undervaluing its currency. 

2009-2016: Under President Barack Obama and Hu Jintao (until 2013) and incoming President Xi Jinping (from 2013). The Obama administration implemented a policy of ‘rebalancing’ towards the Asia-Pacific, with a focus on strengthening alliances and partnerships in the region. Bilateral trade between the countries continued growing, albeit with the US running a significant trade deficit with China. The US continued to press China to allow the Renminbi to appreciate.

2017-2021: Under President Donald Trump (until January 2021), President Joe Biden (from January 2021) and Chinese President Xi Jinping. President Trump adopted a confrontational approach towards China which led to restrictions on Chinese technology companies (such as Huawei), and China being identified publicly as a ‘strategic competitor’. Trade disputes between the countrys escalated with both countries imposing tit for tat tariffs on each other's goods. The US argued that it was seeking to address the trade imbalance by demanding China reduce its trade surplus. The valuation of Renminbi continued to frustrate the US with although it never formally identified China as a ‘currency manipulator’. 

Military and national security tensions grew during this period. Taiwan continued to surface as a source of tension between the nations with the US providing support for the island nation mainland China claims as part of its ‘one China policy’. The US increased arms sales to Taiwan, fostered greater regional support for Taiwan, and leading political figures such as Nancy Pelosi visited Taiwan. The US also led increasingly frequent freedom of navigation maritime patrols through disputed international waters such as the South China Seas and associated air patrols. Tension and incidents (‘near misses’) over disputed airspace increased with each side blaming the other for recklessness. Both sides have also apparently chosen to publicize these incidents for public awareness. 

The emergence of the COVID-19 global pandemic added to these strained relations with the Trump administration directly blaming China for its handling of the outbreak. The origins of the virus remain disputed in the public domain as do China’s COVID management policies. 


2021-2023: The US-China relationship has remained tense under the Biden administration. Few of the policies introduced under the Trump administration have changed and numerous other issues continue to be contentious including: human rights, China's treatment of Uighur Muslims, cybersecurity, and the ongoing territorial disputes in the South China Sea. The relationship ‘with no limits’ between China and Russia is also a notable drag on the relationship as are ongoing issues such as are intellectual property theft, anti-competitive behaviour and market access. 


Risks emerging from deteriorating bi-lateral relationships 


China's evolution as a regional power is closely linked with its rapid economic growth. As it has industrialized, China’s ambition has also risen and it has been able to assert its regional agenda with increasing boldness. China’s investment in its military capabilities and shift away from a ‘soft power’ model has caused inevitable nervousness amongst China’s neighbours and across the wider region. There are growing risks that specific bi-lateral and/or regional relationships could deteriorate to an extent that significantly harms Chinas interests. 


In the 20th century, Chinese leader Deng Xiaoping is credited with the early steps in the late 1970’s to make China more externally oriented. Deng initiated economic reforms to open China up to the foreign investment and trade necessary to enable China's rapid economic success. President Jiang Zemin, continued this approach by emphasising "peaceful development" and enhancing relations with China’s Asian neighbours. In the 2000s President Hu Jintao promulgated the idea of a "harmonious world" through cooperation and partnerships via regional stability and economic integration. 


Current Chinese President, Xi Jinping has maintained China's outward orientation albeit with a stronger nationalist tone focused on strengthening its regional influence. The Belt and Road Initiative (BRI) launched in 2013 includes explicit goals to enhance economic cooperation across Asia and other parts of the world. BRI has also provided China a framework for deepening trade relationships in the region, undertaking infrastructure projects that project Chinas interests. 

Multilateral organisations such as ASEAN (Association of Southeast Asian Nations) and the EU have been a high priority for China because of their economic and political influence. 

Relationships with other nations have been carefully curated based upon Chinas economic and developmental goals. China has undertaken significant infrastructure projects globally as a means to build strategic partnerships, gain access to resources, and enable future Chinese expansion. 

Containers stacked at a port

Despite sustained initiatives over decades, significant foreign aid, and efforts to use soft power, Chinese relationships with its immediate neighbours and key bi-lateral partners have had mixed results. On one hand, China has consolidated its status in the Asian region and built solid trade relationships across the world. China has been able to achieve many of its developmental goals and establish itself as major power. 


Conversely however, China has aggravated a number of its neighbours resulting in regional tension, decreasing levels of trust, and the rapid build up of military and regional alliances to counter China’s influence. The further deterioration of some of these relationships could provide problematic to China and create additional risks to its economy. 


The following are some of the key relationships that could significantly Chinese impact interests. 


China and Taiwan 


The relationship between China and Taiwan is at the core of how China views itself and provides a lens for other bi-lateral relationships. The two nations are and defined by their shared history with China viewing Taiwan and an inalienable part of China (‘one China’) and Taiwan asserting its democratic sovereignty. 


Despite the fact the nations face each other with essentially a war footing across the Taiwan Straits, the relationship between China and Taiwan had been incrementally improving over the years. This has been on the back of significant two way trade and investment activity. Mainland China has subsequently became Taiwan's largest trading partner and many Taiwanese businesses have investments in China. 


Despite this warming of the relationship, mainland China has assiduously followed a policy of diplomatically isolating Taiwan in an effort to suppress Taiwan gaining international recognition. China exerts significant pressure on other countries to adhere to the "One China" policy and decline Taiwanese efforts for recognition. China’s apparently long standing patience with Taiwan however, is primarily attributed to China’s need to modernize its military and US protection of Taiwan rather than an inherent benevolence. 


The political environment in Taiwan however has also has been somewhat of a pendulum causing China to continually reappraise its strategy. On one side, the Taiwanese Kuomintang party (KMT) was increasingly softening its stance over time towards China to an extent that seemingly reassured Beijing that ‘unification’ was simply a matter of time. The Democratic Progressive Party (DPP) however, has conversely become increasingly forthright about Taiwanese rights and independence and alarms Beijing. This in shift in Taiwan likely reflecting an increasingly negative sentiment from the Taiwanese public about the Chinese ‘one country, two systems’ and repressive mainland government policies. 


China’s aggression towards Taiwan could hence be closely associated with whether the KMT or DPP are in power and the degree to which the US government signals its support for the Island nation. The 2022 visit to Taiwan by US speaker of the House Nancy Pelosi’s was a recent example of US action viewed as a provocation by the Chinese side that necessitated a strong response. 


These conditions have led to rapidly deteriorating diplomatic and military relations between China and Taiwan in 2023. Chinese military exercises have occurred with increasing frequency near Taiwan's air and maritime zones in the Taiwan Straits, as well as significant numbers of cyber attacks. US and allied countries have consequently also increased their military presence around Taiwan raising the likelihood of serious incidents or miscalculations by China, Taiwan or a number of allied countries. 

City in China, night time

China and India


Economic and political relations between China and India have expanded significantly over the last twenty years. Bilateral trade in particular grew rapidly with China becoming one of India's largest trading partners with bilateral trade crossing US $100 billion in 2022. India's trade deficit with China however also grew to around US $75 billion and has been a source of consistent concern from the Indian side. India has consequently sought greater market access in China for its goods and services. 


An area of contention in the relationship has been the presence of Chinese technology companies in the Indian market. Chinese companies including Huawei and Xiaomi have become prominent in India, however there have been growing concerns about the links between such companies and the Chinese government. In response, India has sought to regulate Chinese technology firms, impose restrictions in government projects, and banning ‘high risk’ Chinese apps. Close scrutiny of these companies by India has also led to penalties such as the freezing of US$670 million of Xiaomi funds. 


China’s relationship with other regional nations such as Pakistan have also been a source of tension for India. In particular, India has expressed concerns over the Belt and Road Initiative between China-Pakistan to build the Economic Corridor infrastructure project. Indian sensitivity relates to the projects location in Pakistan-administered Kashmir and the miliary and economic impacts it could have. 


It is however, the longstanding territorial disputes in the regions of Ladakh and Arunachal Pradesh that have caused the most tension between China and India. This conflict has been primarily focused around the border areas in the Galwan Valley area (North Eastern Indian/South Western China). The most significant escalation occurred near the so called ‘line of actual control’ in a June 2020 incident where twenty Indian soldiers were killed and four Chinese soldiers. Both countries accused each other of violating territorial integrity and it led to increasing levels of military deployment and strained relations. Further incidents occurred in 2021 and 2022. 


Overall, it could be argued that China has more to lose should its relationship with India deteriorate further. Following the border tensions in 2020, there was a discernible impact on Chinese companies in India such as Xiaomi who suffered a significant decline in market share. Broader concerns about China have already led to a shift of some manufacturing out of China and some of this could be in India’s favour. Finally, the international support for a more assertive India in the region (as a counter balance to China) is likely to have a negative impact on medium to long term Chinese growth. 


China and the European Union (EU)


China and the EU have maintained a complex and multifaceted relationship over the last twenty years. Trade between China and the European bloc has grown significantly to make the EU China's largest trading partner, and China the EU's second-largest trading partner (after the US). This amounted to around $US 60 billion in 2022 with a trade deficit in China’s favour of around $US 30 billion. Commodities traded are wide ranging including machinery, electronics, vehicles, chemicals, and textiles. 


Despite the strong economic ties a number of areas of tension have emerged in the China-EU relationship. This includes EU unease about limited market access for European companies in China, intellectual property rights protection, piracy, counterfeiting, unfair trade practices, and investment restrictions. The trade imbalance is an ongoing source of contention. 


The EU has also become concerned and cautious at a strategic level about China's increasing global influence. This has included reservations with Chinese technology services on security grounds, and Chinese infrastructure investments and the long term challenges this poses to EU influence (economically and geo-politically). This has been borne out with the case of Huawei and ZTE where the EU Commission have now strongly recommended member nations ‘restrict the role of Chinese 5G vendors Huawei and ZTE in Europe’. 


The EU have also developed policies preventing European companies from making sensitive technologies such as supercomputers, artificial intelligence and advanced microchips in China.


The EU have consistently stressed its view of human Rights and the rule of law with China. This includes the treatment of ethnic minorities, freedom of speech, and political freedoms. Most recently, the EU has voiced its disappointment with China’s tacit support for Russia and failure to directly criticise the Russian invasion of Ukraine. 


Overall, the relationship with the EU looks to be at an inflection point that appears more negative than positive for China. Despite the EU’s reliance upon China for trade, China arguably has more to lose overall from a deterioration in the relationship. The EU have likely noted how US trade disputes have evolved and may consider it the right time to revisit their own concerns and trade imbalance with China. The EU might also see increasing need to more actively shape global technology development and embed democratic and environmental values internationally. 



China and Japan


China and Japan have a long and complicated relationship that includes particularly dark historical episodes in the 20th century. These provide a backdrop for the two regional powers intertwined cultures and economies that are the second (China) and third (Japan) largest in the world. China is Japan’s biggest trading partner, with the total trade between the two having grown over 100 times since 1972 to $US 265 billion in 2022. To date in 2023, China exported $US 13.9B and imported $US 13.2B from Japan giving China a favourable balance of trade. 


Despite its strong economic inter-linkages, China and Japans political relationship is frequently described as ‘cold’. This could be attributed to a number of factors including historical tensions (particularly World War II) and the Chinese perception of insufficient Japanese remorse or memory of this (i.e. education system); rising nationalism and populism in both countries; economic rivalry within which primarily Japan has had concern with issues such as trade imbalances, market access, and insufficient respect for intellectual property rights. 


Japan and China also have territorial disputes that raise tensions. This particularly relates to the sovereignty of Islands in the East China Sea, known as the Senkaku or Diaoyu Islands. Both countries claim ownership and this has resulted in ongoing tension and occasional maritime confrontations. Chinese claims over the South China sea and its efforts to secure it through the establishment of island bases, maritime and air patrols has alarmed Japan. 


Japans political and military alliances are conversely a source of concern for China. Japan has a longstanding security alliance with the United States and this has resulted in the deployment of US missiles, troops and maritime capabilities. Japan has also formed alliances with other nations in the region including India, Australia, India and other South East Asian nations. Most significantly, however has been Japans assertion of support for Taiwan and guarantee of its security. 


The alliance that Japan has with the US has also had impact in the technological sector. In March 2023, Japan indicated that it would tighten rules relating to the exports of 23 types of advanced semiconductor manufacturing equipment to China. This move was made following US and other nations taking similar measures and is seen by China as an attempt to underline Chinese leadership in emerging technological areas. This is not this first time Japan has aligned with a US assessment of Chinese technology with Japan ceasing procuring of equipment from Huawei and ZTE in 2018. 



China and Vietnam


Vietnam and China have a generally cooperative relationship that has seen increasing competition, and occasionally tense moments. While both countries have a communist government, historical and cultural differences still shape the tone of the relationship. China is Vietnam's largest trading partner, and the economic ties between the two countries is significant with Chinese Exports to Vietnam rising to US$146.96 Billion in 2022. Trade between China and Vietnam includes commodities such as electronics, textiles, machinery, agricultural products, and raw materials.


While China and Vietnam have a largely ‘steady’ relationship, Vietnam opposes China's territorial claims in the South China Sea, which directly overlap with Vietnam's. This has led to maritime disputes and heightened tensions between the two countries. Underlying the claims are competing interests around the exploitation of natural resources, such as oil and gas reserves, in the South China Sea. 


Vietnam has also increasingly received attention and investment from foreign companies seeking to diversify their supply chains beyond China. Examples include Nike, Samsung, Canon, Apple and Foxconn. This interest in Vietnam has been the result of a number of factors including labour costs in China, US-China trade disputes, China’s COVID response, and challenging Chinese policies being applied to foreign companies. Chinese firms are also investing in Vietnam in pursuit of easier access to international manufacturing and trading relationships outside China. 


China and the Philippines


The relationship between China and the Philippines has been generally positive over recent years. Trade between China and the Philippines has grown significantly with China now the Philippines' largest trading partners with bilateral trade reaching around US$87.725 billion. Key commodities traded include electronics, textiles, apparel, machinery, chemicals and food products. 


Like other South East Asian nations, China's territorial claims in the South China Sea have been an enduring source of tension with the Philippines. This has resulted in a number of maritime incidents and ongoing legal disputes. Conflict has been centred around the Scarborough Shoal that China took control of in 2012 and subsequently stationed maritime capabilities and undertook extensive construction activities. Other disputes include the Second Thomas Shoal, also known as the Ayungin Shoal that is currently controlled by the Philippines military. 


The election of a new President in the Phiilippines, Ferdinand ‘Bongbong’ Marcos has seen a shift in relations between the US and the Philippines with indications that the Philippines will pursue a stronger approach to China. While clear about the need for a balanced approach, Marcos has stressed his concerns about China and the necessity for stronger military ties with the US. This was recently demonstrated with the Balikatan war games which involved over US and Filipino 17,000 troops. The Philippines government have also made it clear that they will publicise Chinese activities in the area through the media to raise awareness. 

River in China with fishing boats

China and South Korea


At a high level, Chinas relationship with South Korea has been largely focused on its strong bi-lateral trade. China is Koreas main trading partner within an economy where exports contribute 70% of GDP. Koreas high tech industry is particularly connected to China with significant Korean investment and sales occurring within China. An example is the South Korean chipmakers. Samsung and SK Hynix who have invested more than $30 billion building fabrication facilities in China. 


Current Korean President Yoon Suk Yeol has largely followed the decades long Korean stance towards China. This could be described as being cautious and the maintenance of status quo. That said, Yoon has concerned Beijing by seeking to strengthen South Korean ties with NATO, re-build its relations with Japan, and strengthen its cooperation with the US in deterring North Korea. The deployment of the Terminal High Altitude Area Defense (THAAD) missile defense system in South Korea by the US was not well received by China who saw it as a security threat. 


The risks to the relationship between South Korea and China significantly relate to North Korea and whether North Korean military recklessness causes an incident and/or conflict with South Korea. A serious incident arising from North Korea could drive South Korea closer to the US and Japan and strengthen regional anti-China alliances. China’s influence and ability to constrain North Korea hence remains an important card it can play to retain South Korea in its orbit. 

South Korea recognition of its need to reduce its reliance on China and diversify its trading partners are also noteworthy risks for China. This is because of the significance of Korean investment in China, technological influence, and potential to contribute to further isolation of China in the future. 


China and Indonesia 


China and Indonesia have a steady relationship based upon strong trade and the significant Chinese investment in Indonesia including the Belt and Road Initiative (BRI). The key challenge with the relationship between China and Indonesia is around maritime disputes and China's territorial claims in the South China Sea. This relates particularly to the resource-rich Natuna Islands, which are within Indonesia's Exclusive Economic Zone. Indonesia has taken steps to rapidly militarize the islands over the last ten years in an effort to deter further Chinese activities. 


There is risk that the deterioration in US and regional relations with China could negatively impact sentiment towards China and its investment activity in Indonesia. Other issues such as the Chinese treatment of the Muslim minority Uighurs could also attract wider condemnation and a deterioration in the Indonesian view of China. 


China and Germany 


As with the EU more generally, trade between China and Germany has experienced substantial growth over recent decades. China become Germany's largest trading partner outside the EU with exports of US$113.38 Billion during 2022. Germany is China's most important trading partner within the EU and currently has a trade deficit of $US 84.3 billion euros. Chinese exports include electronics, machinery, and textiles to Germany, and automobiles, machinery, chemical products, and electrical equipment goes the other way.


While the economic ties between China and Germany have been mutually beneficial there has been concern on the German side around fair market access. This primarily relates to intellectual property rights, restrictions on German investment in China, and forced technology transfer. 


The relationship between Germany and China is nested within the wider EU relationship and the war in Ukraine has accelerated receptiveness for a more assertive Germany on the global stage. In 2022, German Chancellor Olaf Scholz declared that Germany would need to undertake a ‘Zeitenwende’ or turning point in its role [in the world]. In 2023, Germany announced the provision of US $3 billion to Ukraine including tanks, anti-aircraft systems and ammunition.


The question remains the extent to which Germany takes up this more prominent leadership and ‘stabilizing’ global role and with it a shift away from primarily a trade led approach. This could mean a Germany that is less ‘neutral’ with China and adds further weight to a Western perspective. 


China and Australia 


While Australia is not one of China’s immediate neighbours and is one of China’s smaller trading partners – the relationship is in some ways a useful 'case study' for China. Australia is China's fifth biggest source of imports and 10th largest export market. Key Australian exports to China include iron ore, coal, liquefied natural gas (LNG), and agricultural commodities. 


There is no doubt that Chinese and Australian relations have become increasingly challenging over the last twenty years. Australia's long standing alliances with the US, Japan and other South East Asian countries has long put it in the cross hairs of Chinese foreign policy objectives. Australia was one of the first countries to question China’s COVID response and Australia has raised human rights issues in China for a number of years. Other issues have included cybersecurity, the South China seas and freedom of navigation, and allegations of Chinese foreign interference. 


The China - Australia relationship provides an indication of the Chinese view of the region and the extent it does and does not separate its economic and political objectives. 

Systemic risks within China 


‘Systemic risks’ are those factors, conditions, or emerging challenges that may or may not be a distinct risk in and of themselves, but can initiate, contribute, or compound other risks. Many of these risks already exist and in some cases appear to be managed. Others could emerge rapidly and potentially cause a cascade of systemic risk and possibly a failure. 


The systemic risks discussed can be broadly broken down into the categories of: economic, social (sociological), political (government), environmental, and technological. Many of these risks are not unique to China but may have distinct characteristics within the Chinese context and evolve differently depending upon how they are managed. The Chinese political system is a key determinant in the management of each risk and has advantages and disadvantages.


It is noted that each systemic risk is highly complicated and warrants its own deeper focused research. This article is intended as an introduction to those systemic risks that may be worth tracking as part of a wider effort to understand China’s overall risk profile. 

Eating place in China

Systemic economic risks 


The rapid development of the Chinese economy has led to elements of imbalance that may create systemic risks. Contributing factors can be summarised as high indebtedness, overcapacity, oversupply, and dependence upon new investment to drive growth. The government has implemented measures to address these risks including regulation, structural reform, and deleveraging the economy. 


The Chinese financial sector has been a persistent area of weakness. Despite government efforts to enhance the resilience of the sector, China has had faced persistent challenges related to shadow banking, non-performing loans, and over inflated assets. The government has consequently strengthened financial regulation and supervision and established the Financial Stability and Development Committee. 


While efforts to reduce the vulnerability of the major Chinese banks has made progress, the risks within the wider banking system remains. Concentrated exposure to the same asset types and high levels of institutional interconnectivity has pushed up the risks. The implication is that even indirect losses from a smaller financial institution could create contagion in the wider system from common exposure (such as to the mortgage market). So while the stability of the major Chinese banks receives media attention the viability of the smaller Chinese banks should also be noted.


The viability of the financial institutions has been wrought by the ‘easy credit’ they have provided over recent decades to enable Chinas rapid economic growth. While this has been essential for business expansion it has also created concerning debt levels, credit dependency, and financial instability. In response, the Chinese government has tightened credit conditions and measures to control excessive borrowing. These interventions however remain challenging to balance with the flexible needs of small and medium-sized enterprises without jeopardising their viability. 


The cascade effects of this easy credit can be seen within the debt sitting within government, private sector, and households. Real estate and infrastructure over development by local and regional government has emerged due to central government policy targets, easy credit, and the increased demand for real estate from internal migration. Land sales and development have resulted in some local and regional adminstrations becoming debt laden and reliant upon an unsustainable growth model. 


Household debt levels have also risen rapidly as a consequence of this permissive environment. This included the accessibility of credit, the attractiveness of real estate as an asset, rising consumption levels, and general confidence in the Chinese economy. This new level of household spending propelled millions of Chinese into a growing middle class that brought with it rising confidence and expectations. The recently reduced spending power of this section of Chinese society and their pessimism about the economy will inevitably have a dampening impact. 


Capital flight from China has been an issue that Beijing has been concerned with for a number of decades. It is estimated $3.8 trillion capital left China over the mid 1990’s. In response China has introduced strict oversight and capital controls to limit the outflow of funds, currency conversions, overseas investments, and foreign exchange transactions. China has also imposed stringent regulations on foreign exchange transactions to restrict the conversion of the Chinese yuan into foreign currencies. 


Despite these measures, there is a risk that that further contraction of the Chinese economy motivates individuals and businesses to move capital outside China. Since the Russian invasion of Ukraine in 2022, China has been experiencing significant levels of capital flight. The recent moves by Beijing to rein in some of the mega companies (such as Alibaba and Tencent) are also thought to be pushing some Chinese companies to consider shifting operations outside China to avoid these controls and operate in more liberal markets. 


Inadequately developed taxation system. China has ongoing structural challenges with its taxation system including a comparatively low tax base, inefficiencies, issues between with the central/regional/local taxation levels, and high levels of tax evasion. Ironically the inefficiency of the tax system has in many instances supported the rapid growth of businesses and a more effective system could also have a dampening effect. 


The availability of low cost labour has undoubtedly been a core driver behind China’s rapid growth to become the ‘worlds factory’. China’s position as the most populated country was frequently cited as its key underlying resource. Access to this low cost work force was supported by waves of migration from rural China to its cities. However, as the country has developed its average wage also rose leading to a decrease in the availability of cheap labour. Arguably, other international locations offering the same or cheaper labour has also led to the loss of manufacturing competitiveness and the Chinese reliance on the lowest price strategy (note the social implications of the shift away from low cost labour are discussed elsewhere). 


As noted, the systemic economic risks China faces have unique characteristics due to the CCP apparatus. This is particularly evident in the relationship between national security and the economy. Over the last decade the Chinese government has introduced a number of measures purported to be for national security reasons that may have a detrimental impact upon the Chinese economy. 


These include the 2023 anti-espionage law that has caused alarm with the international business community. These laws appear to deem routine business activity of international persons or organisations as potentially ‘espionage’ and requires foreign companies to provide full access to its communications to the Chinese government. Many international companies now perceive China as an unsafe operating environment for its staff and business activities requiring elements of confidentiality. 


Systemic social risks


China has a number of systemic social risks that need managing. Many of these risks are not unique to China however the Chinese government response has created different outcome pathways. 


China’s aging population is decreasing the available workforce and simultaneously the levels of 

dependency. By 2029, China will begin a period of ‘negative population growth’ and by 2065 the population will return to the levels of the mid-1990s. This demographic shift poses challenges for sustaining economic growth and puts pressure on healthcare, pensions, and formal and informal social systems. It can also lead a reduced consumer base and flow on effects upon other demographic groups in society. 

Chinese men playing a game

Social inequality and urban-rural divide continues to challenge China with significant income disparities between urban and rural areas and wealth inequality. An estimated 13% of the Chinese population still live close to the poverty line. There is little doubt this has been a focus for government with policies aimed at poverty alleviation and rural development. While poverty rates have been reduced it remains a challenge. This may become more acute with rising employment rates and the loss of opportunity amongst those who moved from rural to urban areas. 


Youth unemployment in China has steadily risen over the last decade to reach over 20% in 2023. This will be further exacerbated by an estimated 11.6 million college students set to graduate in 2023 and bring with them expectations of a career and prospects. 


The significant risks facing the Chinese property sector (which is already covered in another article – see China risk # 1) are increasingly burdening the Chinese population. The high concentration of the populations wealth within a sector that is dangerously over leveraged has creates a systemic social risks that could rapidly unravel. There is clearly growing concern within the Chinese population around the stability of the property and this has led to protests includes the 2020 movement to stop paying mortgage payments to banks and development companies. 


A possible outcome of the many social risks are increasing levels of unrest within China. This could include labor disputes and strikes, particularly in the manufacturing and industrial sectors where workers may be seeking working conditions and higher wages. As China’s economy contracts and manufacturing leaves China for alternative international locations, there may be increased tension between labour costs and the expectations of Chinese workers. A failure to find the right balance could lead to increasing levels of labour unrest and disruption. 


Systemic political risks 


There are longstanding questions around the Chinese one-party system and the extent it creates systemic political risks for China. Much has been written about the downsides of such a centrally controlled system and specifically the Chinese Communist Party (CCP). Despite this the CCP has defied the critics and its longevity has provided stability to China for decades. 


The authoritarian nature of the CCP and the apparatus required to maintain it however does create underlying risk. The rigidity of planned economies can reduce adaptability to changing circumstances with concentration of power in a leader and/or a small group of leaders. This can lead to decision-making that is less responsive and adaptable to evolving circumstances. Rapid changes in the domestic or international landscape require flexibility and agility in decision-making, including the ability to respond to unforeseen events. A highly centralized decision-making structure may hinder the ability to promptly adjust strategies and policies.

Temple in China

Elements of the risks within the CCP have been addressed in different ways, such as Deng Xiaoping’s introductions of limits to presidential terms within the Chinese constitution. This was an attempt to rebalance the supremacy of the party following the Mao years and the ‘cult of personality’ that had developed. This was also seen as a means to mitigate leadership excesses that could give rise to coups by orchestrating the peaceful transfer of power from one leader to the next. 


The CCP is also been highly aware of the dangers of corruption, the abuse of power, and limited political accountability. Continual efforts to address these challenges have been made through anti-corruption campaigns and by promoting rigorous intra-party supervision mechanisms. While on some level these measures may have reduced risk, they have arguably created different issues and the need for a ‘deep state’. The Chinese government has introduced stronger ‘anti-espionage’ state security laws and increased the visibility of the CCP throughout country. The effectiveness of these efforts to foster good governance and mitigate the limitations of one-party rule is cause for ongoing concern.


In 2018, a significant constitutional amendment was enacted to remove the 10-year limit on Presidential terms. This change allowed President Xi Jinping to hold the preeminent leadership position indefinitely. While the CCP apparatus may have adopted this change based upon their confidence in Xi and the perceived necessity for political stability – it does heighten particular risks. 


The concentration of power within a ‘great leader’ inevitably brings with it the strengths and weaknesses of the said leader. Decision-making processes can become heavily dependent on the leader's judgments and preferences. This can lead to a lack of institutional checks and balances, reduce the diversity of perspectives and potentially stifle alternative voices even if they are objectively better. Officials providing advice can become less ‘free and frank’ and instead provide upwards reporting that conforms to the views of the leader rather than reality. This can lend itself to uninformed decision-making and an unrealistic expectations of the leader to make sound choices. 


The great leader model can also limit international bi-lateral relationships with its greater emphasis on the leaders personality and reflecting the leaders preferences and comfort levels. Whereas transitory national leaders can provide an opportunity for a re-set of international relationships, an enduring leader may fixate on the same view and inhibit the opportunities for dynamic policy shifts. Some may argue that continuity of leadership provides stability and the ability to pursue long term objectives better, however, this may ignore the rapidly changing complexity and possibility that a different strategy may be required. 


Over reliance upon a single leader also creates longer term challenges in terms of succession planning and institutional continuity. If the leader's authority is not effectively transferred or if succession processes are not well-established, it can lead to instability and power struggles. This could rapidly lead to wider instability and a loss of confidence in the government more generally. 


Systemic environmental challenges 


With rapid industrialisation, China has suffered from significant environmental degradation. This includes air and water pollution, deforestation, and soil degradation. The government has acknowledged these challenges and launched a number of initiatives to address them. Progress has been made but more efforts are needed to tackle long-term environmental sustainability. 

While environmental challenges have long term impacts they can also create short to medium term risks that can exacerbate other systemic risks. These can be seen with many of the areas of environmental risk. 


Air and water pollution: A number of Chinese cities have severe air pollution particularly where coal is used for energy and emissions from vehicles, construction, and industry. China's water resources have suffered from pollution caused by industrial waste, agricultural runoff, and inadequate wastewater treatment. This pollution affects both surface water and groundwater and may lead to water quantity and quality issues. Beyond the environmental cost, this pollution can directly impact economic conditions (i.e. some reports estimating around 19,000 deaths in Beijing alone and costing US $9 Billion in 2023). These impacts and the reputational damage incurred by the CCP for failing to manage these issues in turn create political risks. 

Polution in China

Land and soil Degradation. The pollution and degradation of soil are major concerns due to industrial activities, excessive fertilizer use, improper waste disposal, and contaminated irrigation systems. Erosion, desertification, and loss of arable land are growing problems and have links to the economic use of the land and population health. The annual costs to rehabilitate degraded land is estimated to be in the tens of $US Billions a year. 


Waste Management. With its significant population and manufacturing base, China generates vast amounts of waste. Improper waste management, recycling, and disposal may create environmental and health risks.


Climate Change. Compounding all of the environmental challenges, climate change will increase the frequency and intensity of extreme weather events and natural disasters. Some estimates suggest the impact of climate change upon China could be in the order of nearly 4% of GDP by 2050.


Systemic technological challenges 


China has been historically very reliant upon foreign technology and has consequently made considerable effort to reduce this technological dependence. Despite this, China's economy still relies heavily on foreign research and technology and remains vulnerable to changes in the policies of international competitors. The US-China trade war which began in 2019, led to the US restricting the export of key strategic technologies such as semi-conductors. This had an immediate impact upon Chinese technology companies supply chains, their ability to meet market demands, and consequently their appeal to international technology manufacturers. 

a circuit board

The policies of the US and others also however accelerated efforts to develop Chinese versions of key technology and develop a higher level of self reliance. On one hand this move away from international supply chains could support local businesses, produce innovation, and strengthen national resilience. On the other hand, however, there is the risk that China loses its connectivity with international research, develops technology that is not aligned with international standards, is inferior, and is simply not attractive to the international market. This could have a profound impact on the value of Chinese exports and undermine its efforts to move up the manufacturing value chain. 


Recent efforts by Beijing to rein in its technological firms including the likes of Alibaba, Tencent, and other significant companies are also notable from a technological risk perspective. Beijing has apparently assessed that some of these companies were becoming ‘too big’, overleveraged, and possibly, too powerful within China. The Chinese government efforts to rein these companies in may however have gone too far. By reducing the level of support for international Chinese tech companies, China may be inhibiting its ability to keep abreast with its technological competitors and shape international standards and markets. 



What to watch in 2023

The risks highlighted in this report are all dynamic and interconnected and present significant challenges to the Chinese economy. This makes it important to watch how they evolve through 2023 and beyond and how the Chinese government seeks to manage them. While it is impossible to predict how each risk will manifest there are indicators that interested parties could watch for in the coming years. While quantifying these risks is extremely challenging these indicators could be rated for likelihood against a range with pre-determined ‘high risk’ zones (Appendix 1).   

What to watch for in the Chinese real estate market: 

  • How companies such as China Evergrande Group, Country Garden Holdings, and Sunac China Holdings manage their debt and if they default; 

  • News of underlying quality and safety issues with property developments from marginally viable developers who have taken short cuts. This may highlight: (a) unsafe and poor quality construction (b) overleveraged and highly risky developments (c) corruption at various levels of government. 

  • Social unrest occurring in China specifically relating to real estate issues. This could include from Chinese citizens who either cannot afford housing and/or have incurred significant losses from real estate investment, revelations about corruption, and quality and safety issues.  

  • The Chinese government’s response at the city, State, and central government levels. The extent of this intervention and the unintended consequences that emerge;

  • The impact of a significant downturn of the domestic Chinese real estate market on Chinese investment holdings internationally and whether this generates capital flight inwards or outwards. 


What to watch for in the relationship between China and the United States:

  • Overall, whether the US government perceives strategic advantage or necessity in the pursuit of economic penalties and constraint of China for a range of reasons. 

  • The US pushing China increasingly publicly around trade imbalances and unfair trade practices by China. Related to this are the availability of options to defuse and concessions from both sides to enable meaningful progress.

  • Technology competition becoming more evident. Growing distrust in the US and among like-minded countries (following US lead) around Chinese technology companies. This distrust may become increasingly connected to national security, supply chain risks, but also protectionist policies around strategic industries. This may include areas such as such as artificial intelligence, semi-conductors, 5G networks, and big data capabilities. 

  • The impact of trade disputes and strategic competition on Chinese technology companies, their development programmes, increasing tension and balkanisation of international standard development, and challenges and decline in the international market for Chinese technology 

  • Rapidly changing sentiment towards China within the US business community. US businesses perception and confidence in China may deteriorate for a number of reasons including: This could be on the back of concerns around the reliability of supply chains, Chinese government market interventions, the US/China trade dispute, and access to an affordable workforce. Specific issues such as the Chinese Cyber security and Data protection laws may also create concern for US business. 

  • Tensions over Taiwan and the South China Seas. A miscalculation by either side during an air or sea patrol cause rapidly escalating into limited conflict. It is understood that the development of protocols to de-escalate such incidents is a high priority for US Secretary of State Blinken. 

  • National security incidents continuing to feature. The Chinese spy balloon incident of early 2023 was an example of heightened sensitivity around such issues and could cause distractions to the resolution of other bi-lateral issues. 

  • Cyber security issues. Ongoing exploitation of US networks by Chinese cyber actors that causes significant loss of US confidential information and/or access to this information or system. Publicity and unintended consequences from this activity provides further cause for a US response. 

  • Regional tension and flare ups. The underlying tension generated between the US and China acting in each others geographic spheres will continue to grate both sides. Specific incidents could cause tension too such as North Korean miscalculation, suppression of public sentiment in Hong Kong, location of Chinese military/spy base near US territory, or development of new Chinese bases in Asia-Pacific. 

  • The US to continue highlighting human rights within China. This is likely to focus on treatment of ethnic minorities such as the Uighur's and could lead to leading to tension and an inability to resolve wider bi-lateral issues. 

  • Sentiment towards China in the US deteriorates. Any one of the issues noted could generate a negative perception of China and providing impetus to US political leaders to respond. 


Regional bi-lateral relationships to watch: 

  • Escalation of tensions in the Taiwan Straits. The increased volume of Chinese air and maritime forces in the Taiwan Straits raises the probability of a miscalculation and/or incident involving the military forces of Taiwan, the US or another ally. A serious incident would require rapid de-escalation and even if conflict was avoided it would provide grounds for new measures against China. 

  • Signs of increased US political support for Taiwan through elected representatives or government officials. This could include informal/formal visits to Taiwan and military support and exercises. The nature of these visits could be indicative of how the US views Chinese strength and believes there is a window to press an advantage and build longer term stability in the Taiwan Straits. The Ukraine war has provided a clear illustration to China of the political and military risks with an attack upon Taiwan and this will hearten the US and its allies. 

  • Escalation of the territorial disputes with India. Another serious incident along the Line of Actual Control (LAC) would significantly harden Indian resolve and bring with it the possibility of: military conflict, India moving away from non-alignment to ‘take sides’, and a detrimental impact upon Chinese business interests in India. 

  • An escalation in any one of a number of existing territorial disputes in the South China or East China seas could lead to increased tensions and conflict. This could involve the Philippines, Vietnam, Indonesia, Taiwan, Japan and their respective allies. While Chinese military superiority is assumed over its neighbours, the impact if such a conflict could be significant on the Chinese reputation and interests. 

  • Ongoing tension between the US and China corresponding to increased tension within China’s other key bi-lateral relationships and/or in the region. China could suffer a loss of stature towards regional leadership. Non-aligned and predominantly ‘trade’ based bi-lateral relationships could also become increasingly vocal regarding other socio-political issues as public sentiment shifts against China. 

  • The rapid build up of the military capabilities of China’s neighbours in response to China’s territorial claims and military activities. These capabilities will increase the likelihood of a more assertive response by these nations to China. 

  • Increasing levels of economic competition between China and its neighbours as they perceive opportunity to attract foreign manufacturing and investment away from China. Specific industries and regions in China could be particularly impacted as industry shifts away to new regional locations. 

  • Cyber intrusion activity undertaken by Chinese based actors causes significant impact in the target industry and/or country. The extent of the activity could cause hardened policy settings against China and Chinese interests. 

  • More countries to restrict market access to Chinese technology companies to their telecommunications, 5G, and other advanced technology projects based upon security risks. 

  • Strategic concerns about Chinese developed technology and its connection with the Chinese government limits the international demand for collaborative projects, standards development, and market access. This could impede Chinese research and development and reduce the international demand for Chinese goods and services. 

  • Reputational damage to China if further incidents should occur in the disputes in the South China Seas. Falling sentiment towards China across the region could lead to public support for measures to counter China through trade and other means.

  • Further outbreaks of COVID or any other similar health emergency is attributed to China and causes ongoing political, economic and social disruption. As well as the direct impact upon supply chains, bi-lateral and regional trading partners may accelerate the exit from Chinese suppliers. 

  • More international companies to shift operations out of China and to the likes of India and Vietnam and other regional locations as a direct result of the US-China trade issues, rising costs, Chinese government policies and concern with supply chain security. 


Systemic risks to watch through 2023 and beyond: 


  • Ongoing weakness in the Chinese financial sector related to shadow banking, non-performing loans, and over inflated assets. The failure of large and/or key institutions could create wider contagion and systemic failure. 

  • Government interventions within the financial sector could transfer considerable risk to government institutions and jeopordise the utility of the tools available.   

  • The vulnerability of big and small Chinese banks because of their high levels of institutional interconnectivity and concentrated exposure to highly vulnerable Chinese real estate

  • The impact from the loss of ‘easy credit’ within China upon small, medium sized enterprise upon their viability and ability to scale and compete internationally

  • The unsustainable use of land sales and real estate development by many local and regional adminstrations to generate revenue resulting in levels of debt that result in the loss of services. 

  • More information emerging around the levels of household debt levels becoming an increasingly political issue as Chinese citizens blame government policies for the failure of the economy at the macro and micro levels. Portions of the Chinese population may begin so question whether the CCP and political system has the capability to adequately manage China’s future development. 

  • Capital flight from China re-emerging as an issue that undermines the Chinese economy. Beijing may again seek to strengthen its oversight and capital controls. 

  • Very large Chinese companies increasingly look for ways to shift operations outside China to avoid Beijings increasing interventions. 

  • Ongoing challenges with the efficacy of taxation system with its low tax base and  inefficiencies not supporting Beijing to make the policy decisions it may need to. As the economy contracts, the tax base will also shrink. 

  • The unavailability of low cost labour in China providing opportunities to other emerging low cost labour countries to absorb China’s work loads. There may be increasing numbers of manufacturers seeking to shift all or part their factories offshore. 

  • Related to rising labour costs in China are the unmet expectation of the growing Chinese middle class who have experienced a long period of sustained economic growth – and now find it harder to find a well paying job. As well as the obvious risk of social tension, this will impact Chinese consumer confidence and consumption. This can be observed with spending on luxury goods and services and discretionary purchases.   

  • The underling authoritarian characteristics of CCP apparatus becoming more evident in the nexus between national security and the economy with Beijing making decisions impacting the economy for declared national security reasons. Some decisions will risk significantly undermining Chinese competitiveness and attractiveness to investors. 

  • Incidents arising from the implementation of the 2023 anti-espionage law involving foreign nationals will heighten concerns amongst international businesses and investors around the risks of doing business within China. International companies operating in China will need to be cautious if/when national security incidents in the likes of the US become publicly known and Beijing looks for reciprocal responses. 

  • China’s aging population and ‘negative population growth’ will put increasing long term pressure on healthcare, pensions, and formal and informal social systems. The result may manifest in a number of different ways and particularly upon Chinese youth who may become increasingly unsatisfied with their prospects. 

  • Rising social inequality and an urban-rural divide may become more evident. Many Chinese workers who have been laid off in the cities may return to their home towns. This may cause more general discontent with the economy and the Chinese government itself to spread further across the country. 

  • Youth unemployment continuing to rise as the Chinese economy stagnates and finds a new equilibrium that may not provide the same employment and lifestyle expectations for young Chinese.

  • Loss of individual or family wealth through a collapse of the Chinese property market is likely to cause pockets of social unrest. This will be particularly acute where the levels of excess, corruption, and general recklessness become publicly known. Beijing may feel the necessity to impose harsh penalties upon the perpetrators to make an example. 

  • Increasing levels of unrest within China including labour disputes and strikes, particularly in the manufacturing and industrial sectors where workers may be seeking working conditions and higher wages.

  • Public exposé of significant cases of corruption, the abuse of power, and questionable political accountability will continue to test the stability of the Chinese political system at multiple levels. 

  • The removal of limits on Presidential terms and resulting concentration of power within a ‘great leader’ will be shown to have inevitable challenges. Decision-making processes can become heavily dependent on the leader's preferences, will cause a reduction in the diversity of perspectives that may be objectively better. The rejection of official advice and ‘free and frank’ policy processes will be evident with the dismissal of the visible heads of Chinese government departments and spokespersons.  

  • The limitations of the great leader model with regard to international bi-lateral relationships with its emphasis on the leaders personality and preferences will be highlighted with China’s inability to make progress on a number of bi-lateral challenges and becoming increasing globally isolated.   

  • Longer term challenges such as (leader) succession planning may not be of immediate concern, however, the lack of clear pathways of institutional continuity will increasingly undermine confidence in China (at home and internationally). The unsustainable expectations around the success of the leader, the inevitable failures, and removal of timeframes for a leadership refresh may lead to a sense of resignation and low optimism or ambition for change.  

  • Air and water pollution becoming more of public issue within China and of increasing concern to (1) Chinese citizens suffering detrimental health and safety impacts (2) the health system and its ability to manage the impact of this upon the Chinese population (i.e. such as the  significant increase in respiratory illnesses) (3) business and industry in China impacted due to the draconian measures required to manage the levels of pollution and (4) the reputational damage to the Chinese government from the perceived failure of its management of the issue by the domestic population and international stakeholders. 

  • Severe cases of land and soil degradation becoming an issue if the extent and impact of cases becomes publicly known. Cases impacting international supply chains will damage China’s reputation as a safe and reliable food producer both within China and internationally. Extreme cases where people, particularly children, die as a result of ineptitude, corruption, or recklessness could cause local and or national outrage in China and lead to severe penalties to the perpetrators. 

  • While inadequate waste management is some parts of China may be inadequate it is not likely to create wider risk in and of itself. However, cases of large scale pollution from waste that impacts the health and business interests of a significant group in the population could create anger against government officials. 

  • The significant environmental risks relating to the impact of climate change becoming a more prominent and domestic political risk. As with other vulnerable parts of the world, large parts of China will see an increase the frequency and intensity of extreme weather events and natural disasters. While the Chinese government may seek to manage the narrative around climate change, its impact and growing awareness of the issue, particularly amongst younger Chinese will create dissention towards the Chinese government.  

  • China’s technological dependence on foreign research and technology leaving China vulnerable to changes in the policies of international competitors. Further escalation of the US/China trade disputes and wider international restrictions around the export of technology to China will continue to have significant impact upon Chinese technology companies supply chains, their ability to meet market demands, and consequently their appeal to international technology manufacturers. 

  • Chinese efforts to develop a higher level of technological self reliance leading to a loss of connectivity to international research and standards. This could lead to the development of parallel Chinese technology that may be increasingly incompatible with competitors and have less appeal in international markets.  

  • Efforts by Beijing to rein in major technological firms such as Alibaba, Tencent, and other significant companies become more common. While the Chinese leadership rationale for this may be for sound from an internal political perspective, the level of intervention with Chinese ‘champions’ may go too far and undermined Chinas ability to contest technologically  within international markets. Some Chinese technology companies will risk being viewed as unreliable partners who have not kept up with technological developments. It may consequently take some years for some Chinese firms to return to their previous scale and influence internationally.  




China has a number of challenging risks to manage through 2023 and the immediate years. Key emergent risks include a significant downturn in the Chinese real estate market, ongoing tension and strategic rivalry with the United States, and tension within regional bi-lateral relationships. The question remains how these emergent risks will trigger and exacerbate underlying systemic risks within China. These include systemic economic, social, environmental and technological risks. Interested parties would be prudent to closely monitor these emergent risks to determine if they are significant enough to cause broader failures within China. 


Arguably, however the primary systemic risk remains ‘political’ with the possible impact of emergent and systemic risks creating an untenable scenario for the Chinese Communist Party and the apparatus established to maintain its political supremacy. While the strengthens of the political system are frequently heralded in China’s rapid development, its converse weakness may become increasingly evident. This could rapidly reduce the social licence the CCP has with the Chinese population as the economic growth ‘opium of the masses’ no longer provides the same offer and the population questions other dimensions of societal value. China’s challenges will be significant through 2023 and beyond. 

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