How China’s Government Keeps Inadvertently Hurting Its Own Economy

China did not have a good 2023. Official statistics released this month showed that the world’s second-largest economy—which analysts had projected would bounce back after its strict COVID-19 prevention measures were lifted in December 2022—underperformed in just about every economic indicator. For what it’s worth, GDP growth was at 5.2%, a bit higher than expected, but even that figure is widely distrusted given the country’s staggering youth unemployment, real estate crisis, disappointing stock market, and general local malaise last year.

To resuscitate the flailing economy, President Xi Jinping’s administration has introduced a slew of new initiatives in 2024, including measures to attract foreign investors and stimulate domestic consumption. But acting as a seemingly ever-present counterweight to China’s economic rise is a parallel set of ambitious policies by the Chinese Communist Party (CCP) meant to improve or protect Chinese society, which have in recent years tended to come with some undesired knock-on effects. 

In a particularly embarrassing case, China’s attempt to crackdown on young people’s addiction to gaming last month fuelled speculations of impending curbs on China’s largest gaming companies and rattled the stock market so much that one day later, authorities hurriedly vowed to revise the draft regulations they had just introduced.

Ambitious goals like these, outlined by departments across the government to align with Xi’s vision of an ideal society, find themselves increasingly at odds with the government's push to revive China’s faltering economy. 

Recognizing the problem, last week, the director of the National Development and Reform Commission’s Department of National Economy, Yuan Da, said at a press briefing that “the importance of strengthening policy coordination has become further highlighted,” and he vowed that his agency would do a better job of reviewing proposals for “non-economic policies” to check that they don’t “have a shrinking inhibitory impact on the economy.”

It’s not going to be an easy balance to strike. “Now the government has multiple objectives to pursue,” Adam Y. Liu, assistant professor at the Lee Kuan Yew School of Public Policy in Singapore tells TIME. “When you have clear multiple objectives, sometimes these objectives are not necessarily in sync with each other.”

Liu believes the persistent policy clashes boil down to the overcentralization of power and the desire, by local officials who enforce such policies, to appear faithful to the whims of China’s top leader, no matter the economic costs. 

“It’s really more about showing your loyalty. Sometimes, even if it doesn’t make any economic sense, it makes a lot of political sense to do economically senseless things.”

Here are some of the ways in which China has inadvertently harmed its own economy in pursuit of non-economic priorities.

In December, the National Press and Publication Administration (NPPA), which regulates China’s gaming sector, announced a set of draft regulations aimed at curbing online games, including setting spending limits and banning games from rewarding players who log in every day—the latest in a series of curbs on the gaming industry in recent years as authorities have sought to tackle gaming and smartphone addiction among youth. 

But the crackdown, which gained traction in 2021, has come with serious economic fallout in China’s multibillion dollar gaming industry, which saw its total revenue shrink for the first time in 2022. The draft regulations announced last month also sparked panic among investors who worried about another tech crackdown reminiscent of the one in 2021. Shortly after the rules were announced, shares plunged for China’s two biggest gaming companies, Tencent and NetEase, which saw nearly $80 billion erased from their combined value. 

Authorities scrambled to contain the panic. The NPPA issued a statement one day later vowing to “revise and improve” its draft rules. Authorities also quickly approved 105 domestic games, in what state media outlet Global Times reported was a signal of support for the country’s gaming industry. In early January, the chief of the CCP’s propaganda department, which oversees the NPPA, was removed, Reuters reported.

Xi’s aggressive campaign against corruption has become one of the hallmarks of his presidency, punishing 4.7 million officials over the last decade as China’s top leaders vow to purge corrupt personnel across the rungs of its bureaucracy no matter if they’re “tigers” or “flies.” The campaign is showing no signs of slowing, with Xi announcing this month that the corruption cleanup will be deepened across key industries such as finance, pharmaceuticals, and infrastructure. 

While authorities argue that the zealous effort to stamp out corruption is for the good of China’s economy, experts have long warned that it is coming at a hefty cost, discouraging officials from embarking on new projects for fear of being deemed corrupt and hurting investor confidence in the sectors that are being targeted. China’s anti-graft campaign has led to massive fallouts across its economy, from the get-go: an estimate by Bank of America Merrill Lynch in 2014 put its cost at $100 billion; and just last year, a crackdown on corruption in China’s healthcare sector wiped $142 billion from the market value of healthcare stocks. 

Amid increasing political friction with the U.S., China in July implemented a new anti-espionage law that sought to limit foreign consultancies over fears of them giving out state secrets. But with how broadly worded the law was, it effectively muzzled business advisers tasked with providing due diligence information and intel to foreign companies hoping to invest in the country and worsened an already fraught business environment.

While the effect of the law has yet to be fully measured, it was implemented amid a bad foreign investment baseline. Commerce ministry data shows that actual utilized new foreign direct investment for 2023 was 1.1 trillion yuan ($155 billion), 8% lower than in 2022, despite consistent messaging from China’s premier and economic champion Li Qiang that the country is open for business. 

“Anyone who is looking to invest in there has to be a little worried,” said JPMorgan & Chase CEO Jamie Dimon in an interview with CNBC at Davos 2024. “The risk/reward changed dramatically.”

Once lauded as the most efficient infection containment strategy at the onset of the COVID-19 pandemic in 2020, China’s zero-COVID policy—known for its widespread lockdowns, population-wide quarantines, and mass testing regimes—became its own bane after the Xi administration refused to make adjustments, even as the virus became endemic globally.

At one point, the measures made it difficult for families to secure food supply and hampered responses to fires and other emergencies. Some residents were forcibly quarantined, and protests broke out in several cities over residents’ inability to work due to the rigid health policy. Dissatisfaction reached its peak in November 2022, with protesters on the streets calling for an end to zero-COVID in a rare moment of popular political dissent in China.

A stunning reversal came in December 2022, when the Xi administration suddenly dropped all its restrictions. But the economic effects of years of lockdown endured, especially the depreciated consumer and business sentiment.

Private tutoring firms in China became especially popular at the height of the COVID-19 pandemic. While the $150-billion industry capitalizes on teens’ hopes to achieve success in the annual gaokao (national university admissions tests) in June, the Xi administration believed it also exploited parents’ anxieties that only a child with a university degree can be successful in life.

In June 2021, the government suddenly banned for-profit tutoring, even barring them from advertising their services to a degree. But the ban, which was meant to cut down on child-rearing costs amid a record-low birth rate as well as to police the ballooning profits of education firms, forced many private education companies into the red. China’s largest education company laid off as much as 60,000 personnel in light of the overhaul, adding to an already swelling unemployed population. 

The ban was also ultimately unsuccessful in stopping for-profit tutoring: a black market of private tutors emerged, pandering to parent’s desperation to improve their children’s gaokao test scores, with much more exorbitant prices.