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Economic pressures on China, new data of the origin of the pandemic and the AUKUS alliance

China's GDP had an annualized growth of 4.9% last quarter, one of the lowest in decades and drastically less than 18.3% for the first quarter of this year due to post-pandemic rebound. Many economists predict that annual GDP growth for the next ten years will be around 7%, which is much lower than the 13% that China experienced on average between 1990 and 2020. 

The Communist Party has established some measures against the previous growth model that was based on excessive financial leverage. There are now strict limits on the amount of debt that can be created, so many companies are currently suffering from a lack of liquidity and access to loans. Due to these restrictions, the real estate company Evergrande, one of the largest entities in the country, is on the verge of bankruptcy and this is already causing a credit crunch that have damanaged new economic projects and the viability of many companies. 

On its quest to control the personal data of the population and fight against the 'evils of capitalism', the Chinese government has cracked down on its own tech giants such as Tik Tok, Baidu, Alibaba and Huawei; it has also banned the use and mining of cryptocurrencies. The new regulations restrict the use of data and the profit-seeking activity of these companies in areas such as education and entertainment. The government fears that the tech giants and their billionaires will become too important in people's daily lives and pose a threat to the political and economic dominance of the Communist Party. An extreme case of these measures came in the middle of this year when the government limited the time children are allowed to play video games to three hours a week. 

President Xi Jinping has also announced a steep tax hike on the highest incomes to reduce wealth gaps and increase the judicial prosecution of billionaires who do not comply to the rules set by the government.

Another factor that has affected the Chinese economy has been the constant power shortages throughout all the country as the government has undertaken an environmental policy that seeks to drastically reduce pollution and the use of fossil fuels. The coal available to generate energy has decreased substantially and this has caused that industrial activity cannot operate normally. 

Taking already into account the effects of the pandemic and the Trump tariffs, aluminum production has fallen for five consecutive months and steel remains stagnant. All these regulations will very surely affect the growth of the economy in the medium term, but it is the price that the Communist Party is willing to pay to keep control of public life in China. 

On the political side, an investigation made by an Australian-American cybersecurity company, called Internet 2.0 found, using open Chinese data, abnormal purchases of PCR equipment in early 2019. The main buyers in China were the People's Liberation Army Hospital in Wuhan, the Wuhan Institute of Virology, the Wuhan University of Science and Technology, and the Wuhan Centers for Disease Control and Prevention. 

The study also showed that there was a greater traffic of people arriving in mid-2019 to hospitals in that city for 'pneumonia and dry cough'. In October 2019, the Military Olympics were also held in Wuhan and many soldiers from around the world returned to their home countries with symptoms related to COVID, suggesting the possibility that the virus was already spreading through the city long before the official start of the pandemic, dated in December 2019. 

Western powers have also accused China of repeatedly lying about the virus and silencing scientists who published sensitive information on the subject.  China has reacted to these publications and pressures saying that it is 'anti-Chinese propaganda', and that in fact the virus could have come from the laboratory of Fort Detrick, in the state of Maryland, United States, thus feeding a theory that has been spreading around for a while but has little empirical support so far. 

On the military side, Donald Trump put US soldiers in Taiwan to 'carry out training tasks' with the local army, and since then, China has reacted by frequently sending its army near the territorial limits of the island for 'observation tasks'. As the communist continental China has always considered Taiwan as part of its legal territory, its war rhetoric regarding the plans to invade the island to force a unification has been increasing recently. 

Now with Joe Biden, the United States has formed together with Australia and the UK a very strong military security pact called AUKUS. This pact first caused a diplomatic crisis with France, US's oldest ally, over Australia's cancellation of a $ 50 billion contract it had with Paris to purchase twelve diesel-powered submarines. The new pact, on the other hand, will give Australia access to the technology that the United States has in order to build eight nuclear submarines, which, unlike diesel ones, allow to navigate underwater for several years without the need to rise to the surface, and represent also a greater military and environmental threat. 

The main objective of this alliance is to counteract China's military activities in the Pacific and contain its expansion policy on islands that are in dispute with Vietnam, South Korea and Japan, mainly. Joe Biden has defined the relationship with China as "the battle of the century" and one that "tests the limits of liberal democracies against autocracies." Biden has also designated the Indo-Pacific zone as 'the most transcendental region for the future of the United States', so his geopolitical strategy will be based on forging closer alliances with all of China's regional enemies and increasing the United States military presence. 

China's expansion as a world superpower based on economic growth and international cooperation seems complicated ahead. Taking into account that the Communist Party does not seem to want to relax at all the rigidity of its authoritarian political system, the future of the Indo-Pacific region will surely have enormous political, military and economic challenges.


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