The Morning Dispatch: Why China’s Economy Is Cooling Off

Happy Thursday! The NBA is back and, after one game, the Chicago Bulls have a winning record for the first time in 1,694 days.

Quick Hits: Today’s Top Stories

• The Food and Drug Administration (FDA) on Wednesday formally amended the emergency use authorizations for the Johnson & Johnson and Moderna COVID-19 vaccines so that any recipient of the Johnson & Johnson vaccine age 18 and older may receive a booster dose at least two months after their initial shot, and recipients of the Moderna vaccine older than 64 (or “occupationally exposed” to the virus/otherwise at high risk for severe illness) can get a third dose six months after their second. The FDA also announced Americans can—pursuant to the aforementioned restrictions—“mix and match” their original and booster regimens, using whichever vaccine they prefer for the latter. The Centers for Disease Control (CDC) will likely issue its own recommendations in the coming days.

• With the FDA and CDC set to meet in the coming weeks to discuss authorizing COVID-19 vaccinations for children ages 5 to 11, the Biden administration announced plans on Wednesday to “ensure that, if a vaccine is authorized for children ages 5-11, it is quickly distributed and made conveniently and equitably available to families across the country.”

• The Washington Post reported yesterday that internal U.S. Customs and Border Protection data show American immigration officials detained 1.7 million people along the southern border in the 2021 fiscal year, the highest annual figure on record.

• Hours after the bombing of an army bus in Damascus killed 14 military personnel and injured several others, Bashar al-Assad’s Syrian government reportedly shelled a residential area in the rebel-held city of Ariha, killing at least 13—including several children.

• Senate Democrats’ Freedom to Vote Act—a slightly pared back version of the party’s previous federal election reform push—failed to advance yesterday after every Senate Republican voted against opening debate on the legislation.

• The Senate narrowly confirmed Catherine Lhamon to lead the Education Department’s civil rights office along party lines on Wednesday, with Vice President Kamala Harris breaking a 50-50 tie. Republicans opposed Lhamon—who held the same position in the Obama administration—for her position on due process in Title IX campus sexual assault cases, among other things.

• Mike Durant—one of two Black Hawk helicopter pilots shot down in 1993 in Mogadishu, Somalia—joined the Republican primary to replace retiring Sen. Richard Shelby of Alabama. Shelby has endorsed his former chief of staff Katie Boyd Britt in the race, and former President Donald Trump is backing Rep. Mo Brooks.

China’s Third-Quarter GDP Slump

After experiencing a steep economic contraction in early 2020, China turned things around quickly and became one of just a handful of countries—and the only global power—to exit last year with a gross domestic product (GDP) larger than when the year began. But in 2021, the Chinese Communist Party’s reinvigorated crackdowns on the country’s private sector—coupled with widespread energy shortages and pandemic-induced supply chain bottlenecks—has resulted in GDP growth slowing to a crawl.

China’s National Bureau of Statistics (NBS) announced earlier this week that the economy expanded just 0.2 percent in the third quarter, and only 4.9 percent year-over-year. In Q2 2021, that year-over-year figure was 7.9 percent—and in Q1, 18.3 percent.

“The challenges of keeping the economy running smoothly have increased,” NBS spokesperson Fu Linghui conceded in a Monday press briefing, noting China’s recovery from the pandemic remains “unstable and uneven.”

Beijing’s third-quarter slump coincides with a series of structural economic reforms Chinese President Xi Jinping has implemented in recent months ahead of next year’s 20th Party Congress, when he is expected to be reelected as general secretary for an unprecedented third term. It’s a gamble, but Xi is hoping to boost support among fellow CCP leaders and continue his decade-long reign by sacrificing short-term economic growth in the name of “common prosperity.”

“Political control is more important for [Xi’s] leadership than economic growth,” Patrick Cronin, the Asia-Pacific Security Chair at the Hudson Institute, told The Dispatch. “He’s going to find a way to survive because that’s what’s driving him, not the economic growth miracle that some of his earlier predecessors were motivated by.”

Chinese tech giants like Tencent, Didi, and Alibaba have all faced the ire of Beijing’s regulatory state in recent months, but the main target of Xi’s private-sector crackdown has been China’s debt-ridden housing market. Real estate accounts for roughly 30 percent of China’s GDP, and the country has experienced major construction slowdowns in recent months as Chinese property developers struggle to pay off their debts and abide by the “three red lines,” a series of strict borrowing limits the CCP instituted last year.

“The elephant in the room for [the CCP] right now is the collapse of the real estate market,” Cronin said. “Because so much of the domestic economy hinges on it.”

Chinese property developer Evergrande—the country’s second-largest real estate conglomerate—has been the poster child of this crisis in recent weeks after it failed to issue $83 million in interest payments to U.S. dollar bond holders last month. The cash-strapped company is now $300 billion in debt and approaching default, which has stoked investors’ concerns that China’s real estate market is a bubble waiting to burst.

But it’s not just the housing market. Chinese growth has also been hampered in recent weeks by crippling energy shortages. “It [started] with China not wanting to import coal from Australia for political reasons, but then mismanaging the pricing in the energy sector,” said David Dollar, a senior fellow at the Brookings Institution’s John L. Thornton China Center.

The Chinese government scaled back domestic coal production in mid-September in an effort to meet its green energy goals. But faced with soaring energy prices, pandemic-induced port closures, and widespread power outages, the CCP had no choice but to order coal mines to ramp up  production in early October to meet consumer demand.

Experts don’t see Beijing’s power outages and the associated production shortfalls lasting well beyond 2021, but China is facing plenty of other challenges that will likely continue to stifle growth for years to come.

“The overall sluggishness in consumer spending, the wobbles in the real estate market, and the more uncertain investment environment for private firms are all part of the furniture, so to speak, and I would expect these things to [be] challenges for the rest of this decade,” George Magnus, a research associate at Oxford University’s China Center, told The Dispatch.

It’s not all doom and gloom from the Chinese perspective: Because of its gangbusters first quarter, the country is still on pace to surpass the government’s annual 6 percent growth target, and its urban unemployment rate fell back below 5 percent in Q3. Retail sales spiked more than 16 percent year-over-year in the first three quarters of 2021.

But China’s days of unfettered economic expansion—its annual GDP growth never dipped below 7 percent between 1992 and 2015—may be over. American real GDP growth hasn’t even flirted with 5 percent since the turn of the century, but the United States is coming from a much higher starting point. Even after experiencing a 3.5 percent downturn in 2020, the American economy remains more than 40 percent larger than China’s, and more than 500 percent larger on a per capita basis.

Russia Suspends Diplomatic Mission to NATO

Upon the United States’ final departure from Afghanistan, the Biden administration framed the military withdrawal as an adaptation to a changing world. “There’s nothing China or Russia would rather have, would want more in this competition than the United States to be bogged down another decade in Afghanistan,” the president said on the final day of August, closing the chapter with an air of finality. “As we turn the page on the foreign policy that has guided our nation the last two decades, we’ve got to learn from our mistakes.”

But the pivot read to some not as an evolution, but as a regression to the geopolitics of the 20th century. And recent diplomatic strain between the U.S.-led NATO and Russia is the latest indicator that Russia’s post-Cold War flirtation with the West is long in the past. 

On Monday, Moscow announced plans to suspend its diplomatic engagement with the military alliance in Brussels following NATO’s expulsion of eight Russian diplomats allegedly acting as “undeclared Russian intelligence officers.” In addition, the Kremlin moved to close the NATO information office in Moscow—which, while not a perfect analog to its own liaison office in Brussels, falls in line with Russia’s recent efforts to limit independent information accessible to its populace. 

On Tuesday, the U.S. flew two B-1B strategic bombers and two refueling planes over the Black Sea, which two Russian fighter jets escorted away from the direction of Russia’s border. Though the exercises didn’t breach Russian airspace, they were likely intentional posturing on behalf of the U.S. military.

According to Matthew Rojansky, director of the Wilson Center’s Kennan Institute, recent friction between NATO allies and Moscow—while heightened—is nothing new. “Some of this stuff is so well-worn from the Cold War that I think it’s a fair point to say it basically never stopped,” Rojansky told The Dispatch. 

In 2015, NATO removed dozens of alleged Russian spies from Brussels amid aggressive Russian military posturing in the Black, Baltic, and Norwegian seas. And in 2018, the group expelled seven Russian diplomats after the Kremlin’s poisoning of ex-spy Sergei Skripal and his daughter, Yulia, in Salisbury, England. 

“These NATO actions have shown that the bloc is not interested in an equal dialogue or joint efforts to defuse military-political tension. Its policy towards Russia is becoming increasingly more aggressive,” Russian Foreign Minister Sergey Lavrov said Monday. “The myth about the alleged ‘Russian threat’ is being promoted, in part, to strengthen the bloc’s internal affinity and to make it look important in the current geopolitical circumstances.”

Lavrov also retweeted a post from Mikhail Ulyanov, a Russian diplomat, stating: “There is nothing to ‘worsen’ in the #NATO-Russia relations unfortunately. Everything has already been spoiled.” 

The historical adversaries’ spat is unfolding against the backdrop of U.S. Defense Secretary Lloyd Austin’s visit to Kyiv where he met with Ukrainian President Volodymyr Zelensky on Tuesday. “We again call on Russia to end its occupation of Crimea,” Austin said in a press conference, “to stop perpetuating the war in eastern Ukraine, to end its destabilizing activities in the Black Sea and along Ukraine’s borders.”

The latter, the site of an ongoing conflict between Russian-backed separatists and the Ukrainian military, has long been a source of tension between Moscow and NATO.  “It’s a very fluid and unresolved situation, and there’s no question that it’s a proxy conflict in which Russia supports one side and the West supports the other side,” Rojansky said.

On her Telegram account Tuesday, Russian Foreign Ministry spokesperson Maria Zakharova dismissed recent flare-ups between NATO and the Kremlin as part of a broader American effort to return the globe to a bipolar world order. 

NATO Secretary General Jens Stoltenberg, meanwhile, lamented the suspended diplomatic relationship on Wednesday. “Earlier this week, Russia announced the closure of its mission to NATO, and of our offices in Moscow. We regret this decision, which does not promote dialogue and mutual understanding. But NATO’s policy remains consistent, and we remain open to dialogue, including through the NATO Russia Council.”

“This is consistent with the patterns of the last several years, if not the last 70 years,” Rojansky said. “But the lesson of those 70 years is that maintaining diplomatic channels and dialogue is in the strategic interests of both sides, so it is troubling when we see missions shut down altogether.”

Worth Your Time

• Responding to a piece in The American Conservative, Dominic Pino for the National Review writes a rousing defense of Leonard Read’s famous “I, Pencil” essay on the importance of free markets and global supply chains. “The point of the essay is that no single person knows how to make a pencil independently. It’s impossible,” he writes, noting the natural resources required for the wood, graphite, eraser, and metal cannot all be found in one place. “Yes, the supply chains were thrown off by a once-in-a-century pandemic, it’s true, but name a system that wouldn’t be. During a pandemic, you’d much rather live in a world with multinational pharmaceutical companies than one without them…Some countries, namely China and India, tried to go it alone on COVID vaccines, and their vaccines are far less effective than the ones made by Pfizer or Moderna.”

• With the COVID-19 vaccine booster discussion back in full force, Katherine Wu has an important (and accessible) reminder in her latest for The Atlantic: It’s natural—and okay!—for our antibody levels to fall. “Antibodies are supposed to peter out; that’s why they always do,” she writes. “Still, even as our antibodies are dwindling in absolute quantity, these scrappy molecules are enhancing their quality, continuing to replace themselves with new versions that keep improving their ability to bring the virus to heel. Months after vaccination, the average antibody found in the blood simply has higher defensive oomph.”

• Democrats claim that the tax hikes associated with President Biden’s agenda will only target the superwealthy like Jeff Bezos and Elon Musk, but Cliff Asness argues in a piece for the Wall Street Journal that the “working rich”—people with “very high ordinary income in a given year”—will bear the brunt of the proposed changes. “The working rich already face—and actually pay—high marginal tax rates on ordinary income, and ordinary income is most of what they generate,” he writes.

Presented Without Comment

Toeing the Company Line

• In this week’s Capitolism (🔒), Scott Lincicome asks the big question: What if the labor shortage is here to stay for a while? “Regardless of the labor market’s exact positioning at the moment, it seems pretty clear that it will remain really tight for the foreseeable future,” he writes. “This matters not only for U.S. companies desperate to hire and U.S. consumers annoyed by sub-par service, but also plenty of other aspects of U.S. economic policy.”

• On yesterday’s Dispatch Podcast, Sarah, Steve, Jonah, and David talk Chinese hypersonic missiles, Jonah’s much-debated idea for a conservative third party, the latest out of Loudon County in Virginia, and more.

• Jonah’s Wednesday G-File (🔒) waxes poetic about David Shor, an avowed socialist and data geek who is on a lonely mission to make Democrats more electable. Although he doesn’t share Shor’s desired ends, Jonah hopes Democrats heed his advice. Why? “First, because if they listened to him, the Democratic Party would move rightward,” he notes. “Second, I think the actual policies associated with ‘defund the police,’ ‘birthing persons,’ ‘Latinx,’ etc. are profoundly bad for America. And third, because if the Democrats stopped talking about ridiculous things, it would deny many Republicans the psychological permission to behave like idiots.”

• On the site today, Giselle Donnelly looks at Colin Powell’s legacy, namely the Powell Doctrine on the proper use of military power. She argues that “the shortcoming of the Powell Doctrine is that it describes an ideal of war. It is almost never, in fact, a realistic approach to strategy.”

• Also, Danielle Pletka catches readers up on the latest from Lebanon, where fighting between a Christian militia and Hezbollah left seven fighters dead and tensions are high over the investigation into the 2020 port explosion that killed more than 200 people.

Let Us Know

Are you one of the 11 million Americans who’ve already received a COVID-19 vaccine booster dose? If not, do you plan to now that Moderna and Johnson & Johnson recipients are eligible?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).