China delayed its 2008 financial crisis until 2022
The nation’s spending-fueled growth only delayed the inevitable
Writer’s note: This piece was initially published on TheSpectator.com, a U.K. based magazine.
The year 2008 was consequential by many measures. The collapse of the US investment bank Lehman Brothers sparked a worldwide financial crisis. Yet China appeared to emerge out of it relatively unscratched after Beijing introduced a massive stimulus package in the world, about three times the size of the United States government’s rescue program. Thanks to this expansionary fiscal policy and the easy credit that came with it, the Chinese economy quickly returned to its robust growth by growing 8.7 percent in 2009 and 10.4 percent in 2010.
After 2008, the Chinese Communist Party (CCP) leaders concluded that China “escaped” the financial crisis because of its outstanding leadership and the superiority of the Chinese political system over deeply flawed western democracies. The party’s confidence in itself has quickly grown into arrogance and it ushered in Xi Jinping, the CCP’s most assertive and nationalist leader since Chairman Mao. Xi has suppressed dissenting voices at home while unleashing “wolf diplomats” to deliver coercive economic and foreign policies abroad.
Yet, as a banking and mortgage crisis emerges in China in 2022, it seems China didn’t escape the 2008 financial crisis, only delayed it. The canary in the coal mine started in May when hundreds of depositors of five village banks staged a protest in central China’s Zhengzhou, Henan province, after the banks froze their deposit accounts amid a government investigation. Regulators accused these village banks of selling illegal wealth management products to customers and misappropriating customers’ money for risky investments. About 400,000 depositors and their assets of about 40 billion yuan (USD $6 billion) were affected.
Under China’s banking laws, deposit insurance does not cover losses resulting from investing in illegal wealth management products. Depositors were angry that they could neither get their money out nor receive refund for their losses. Rather than addressing these depositors’ concerns, Zhengzhou authorities used a health code system designed for Covid-19 surveillance and tracking to thaw the second mass protest organized by depositors in June. Chinese netizens widely criticized the authorities’ abuse of power on social media.
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