How China Broke the Closed Circle of Recession With the Help of Technology

Economic growth has always been one of the most important and crucial aspects of any country’s existence. In ancient times, this trend was happening on a much slower and less conscious manner; people at that time didn’t have enough insight into economic forces to predict, not to mention influence, the forces of the economy to their advantage.

As our understanding of the society we live in became more and more sophisticated, we started to take notice of the supply and demand forces that are the underlying causes of any economic movement. We also started to develop different theories about what allows people to create a more effective, as well as an efficient society and how to avoid the factors that work against that.

Cycles in economy

However, there has been one issue in economics that is still under a haze and without any causative explanations. It is called a business cycle and it represents a periodic expansion and recession of the economy. The most recent economic recession was the famous 2008 financial crisis but at a much higher intensity.

Since then, the global economy has been on an upward economic development. The expansion of production output, the development of the tech sector, and many other factors are the result of this recovery phase. However, many economists are suggesting that this phase has been going on for a long while now (almost 12 years) and it’s finally time to get to the downward slope again.

The Chinese miracle

In China, for example, this trend can be witnessed by a GDP growth slowdown. Almost forty years ago, in the 1970s, the country began to employ a drastically different economic policy over its previous communist system. Instead of closing to the outside world, China began to welcome it and receive every innovation, investment, or technological knowledge ready to penetrate the country.

This wave of liberal reformation has already been imprinted in economic history as a “Chinese miracle” and indeed, it’s hard to overestimate the implications it had on the country’s performance. After 1978, the initiation of these reforms, China’s GDP growth rate has seen a massive surge, often hitting the double-digit marks. What’s more, it hasn’t come below 4% ever since - and that happened only once in 1989-1990. 

Now, it’s not to say that China has become a liberal democracy ever since. Because it hasn’t: it remained a communistic regime which thwarts any political opposition and continues to oppress various civil liberties. The liberal reformation we mentioned above was only applied to the economy, and it paid off quite nicely.

This trend of economic expansion has lasted for the same forty years now. Even in 2008, China’s GDP was growing at an astounding 9.7%. This goes to show the effectiveness and vigor of Chinese people craving for change. 

Slowly approaching the economic trough

But now, as we head towards the upcoming recession, it already puts its marks on the Chinese economy. While the growth rate hasn’t stagnated or even started to fall, double-digits have been changed by an average of 6% growth. Plus, the country’s working-age population is slowly shrinking, giving way to the elderly Chinese. And all this added to the fact that the average income is already level to the middle-class level in the country, we’re still ahead of the crisis that is expected to hit hard.

The two factors that we mentioned - reduced working-age population and emerging middle-class - are the popular reasons why the economies are starting to slow down. That’s the phase where the economic effectiveness stagnates, the output begins to shrink, and the innovations become rare occurrences. 

“What doesn’t kill you, makes you stronger”

However, something totally different happened in China. Instead of these factors becoming the impeding forces for economic expansion, they actually made the Chinese tech revolution possible.

In terms of the reducing working-age population, sure, the Chinese people might be aging, but they still make up a vast consumer base that is mainly aware of how the technology works and how it should be used in real life. That’s because they were the main part of why their country made such huge technological progress over the previous four decades. Therefore, tech start-ups still have an overwhelming consumer base they can depend on.

And when it comes to the emerging middle class, which causes many countries to slow down the economic expansion, the Chinese middle class is, again, a very technologically-aware demographic segment that has lived through the times of innovation. That’s why they’re still the main users of Chinese mobile internet services, as well as Chinese smartphones like Huawei, Xiaomi, etc.

The boom in the Chinese tech industry

All this makes the already-ongoing Chinese technological revolution possible and attainable. Here are some numbers that can easily showcase the scale of the Chinese tech sector: as of today, almost ⅓ of the overall output comes to this sector; in numbers, that’s more than 3 trillion US dollars worth of industry. Not only that, the past decade has seen the tripling of R&D investments to $440 billion annually. Plus, out of the top 20 largest internet corporations operating right now, 9 are from China (10 from the US and 1 from Canada).

In general, various surveys are ranking China the fastest-growing and developing tech economy in the world. But not everyone perceives this trend as a positive development. There are actually two counter-arguments against it: the first one being the loss of traditional jobs, while the second one is an outcry against mass surveillance.

Fears against this trend

Let’s take a look at each of those accusations. First off, automation and digitalization do take many jobs away. For example, there are stores that use robots instead of cashiers, waiters, etc. There are gyms that use automated screens on the floor to guide gymgoers. And such occurrences are taking place more frequently.

However, many analysts and reports suggest that these fears are far more acute than the reality itself. According to the International Monetary Fund publication, almost half of all job growth in China is related to technological advancement and digitalization. Therefore, this trend creates far more jobs and new professions than it kills.

As for the second point - the increase in surveillance practices, - it’s still beyond doubt that the Chinese government is using live cameras installed in the streets with the combination of face detection technology to monitor its citizens and influence their political choices. 

However, this trend seems to be more pressing for the outside observers. For them, the increase in surveillance cameras and face ID technology is an authoritarian tool that thwarts the civil liberties of the Chinese people. But for the latter, it is far less of an issue. According to the surveys conducted on this issue, the people of China trust technology more than they oppose it on the grounds of privacy infringement. They prefer the technology that makes their lives easier, such as hotels that use face ID to open doors.

Innovation, jobs, and expansion

And now, thanks to this rapid growth in technological advancements, China manages to maintain a significant rate of GDP growth which is way higher than its global counterparts. Platforms like Alibaba, which operate millions of small businesses alone, are creating dozens of millions of new jobs in just a decade. 

The same companies are starting to diversify their portfolios, offering various services and products to their customers. That same Alibaba has opened up its own online bank that has provided loans to more than 15 million Chinese people that are simple to get and totally automatic - “zero humans involved”.

In general, China has already become the largest e-commerce market in the world. Alibaba, Alliexpress, and other Chinese online stores are serving both Chinese, as well as international customers at some of the lowest prices for a wide range of products. And online delivery motorbikes are stacked up on the parking lots in front of the shopping malls, making it difficult for other cars to park there.

So, what’s the bottom line of all this? For the longest period of time, the Chinese economy has been in an upward direction, frequently reaching the double-digit GDP growth. And as every economy, it is slowly approaching its unavoidable trough.

However, even in times of the slowdown, the country shows impressive durability, managing to maintain the expansion rate not lower than 6%. This is made possible by the overwhelming digitalization of the country’s economy. Today, more than ⅓ of the economic output comes to this sector, receiving R&D annual funding of $440 billion from the government.

And despite some claims about the destruction of traditional jobs and increased political surveillance, the tech sector still manages to drive the whole economy, taking it through the hard times of the economic slowdown.