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China’s economy was expected to recover rapidly in 2023 and resume its role as the undisputed engine of global growth. In fact, it has stalled to the point that the International Monetary Fund (IMF) and other organizations have called it a “shackle” on world production.
Despite a host of problems, including a real estate crisis, weak consumption and high youth unemployment, most economists believe the world’s second-largest economy is on track to meet its official growth target of around 5% this year. I think we will reach it.
However, this is still lower than the average annual growth rate of more than 6% in the decade before the coronavirus pandemic. They say 2024 is getting spookier.This country may be staring down the decades. After that it became stagnant.
“The challenge for the Chinese economy in 2024 is not GDP growth. GDP growth will probably exceed 4.5%,” said Derek Scissors, a senior fellow at the center-right think tank American Enterprise Institute. . “The challenge is that the only direction from there is down.”
Without major market reforms, he warned, the country could become stuck in what economists call the “middle-income trap,” where emerging economies grow quickly out of poverty. I mentioned the idea that you just fall into a trap. before reaching a high-paying position.
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China reopened to the world in 1978 and for decades has been one of the fastest-growing major economies on the planet. It grew by 10.5% annually between 1991 and 2011. Expansion has slowed since Xi Jinping became president in 2012, but it still averaged 6.7% over the 10 years up to 2021.
“Growth will slow in the second half of the 2020s,” Scissors said, citing corrections in the troubled real estate sector coupled with population decline.
The IMF has also become increasingly pessimistic about the long-term outlook. In November, it predicted that China’s growth rate would reach 5.4% in 2023 and gradually decline to 3.5% in 2028 amid headwinds such as declining productivity and an aging population.
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China’s economy, beset by numerous challenges, did not reach this status overnight.
Scissors said the previous government of President Hu Jintao injected liquidity into the economy to boost growth in 2009, at the depths of the global financial crisis. After taking power in 2012, the Xi administration has been reluctant to rein in borrowing, which has led to an accumulation of structural problems.
Logan Wright, director of China market research at Rhodium Group, agreed: “China’s economic slowdown is structural, driven by the end of the past decade’s unprecedented credit and investment expansion. It’s being caused,” he said.
He said China’s financial system will never be able to generate the same level of credit growth as in previous years, so the Chinese government will have far less ability to control the direction of the economy than in the past.
What made the situation even worse was that the Chinese government stubbornly accepted a zero-corona policy of strict lockdown. And the sweeping crackdown on private enterprise has deeply undermined trust and hit the most vibrant parts of the economy.
The effects of these policies are reflected in this year’s economic slowdown. Consumer prices will remain low for most of 2023 due to weak demand, and there is a risk of falling into a deflationary spiral.
The real estate crisis is becoming more serious. Plummeting home sales are pushing some healthy developers like Country Garden to the brink of collapse. The crisis has spilled over into the large shadow banking sector, causing debt defaults and protests across the United States.
Local governments are suffering from financial difficulties due to three years of COVID-19 spending and reduced land sales. Some cities are unable to repay their debts; Cutting basic services or cutting health benefits for the elderly.
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Youth unemployment has become so bad that the government has stopped publishing data.
Foreign companies are withdrawing from the country, wary of increased surveillance by the Chinese government. Foreign direct investment (FDI) in China turned negative for the first time since 1998 in the third quarter.
In a September survey conducted by the American Chamber of Commerce in Shanghai, only 52% of respondents were optimistic about business prospects over the next five years, the lowest level since the survey began in 1999.
As China’s growth slows, some economists are drawing comparisons to Japan, which experienced a “lost two decades” of stagnant growth and deflation after the real estate bubble burst in the early 1990s.
But Scissors doesn’t think that will happen, at least not right away.
“The rest of the 2020s will not be like the lost decade. China’s GDP growth will be well above zero,” he said.
But in the long term, the biggest economic problem may be demographic. Last year, China’s population fell to 1.411 billion, the first decline since 1961.
Total fertility rate, or the average number of babies born to a woman intention Her lifetime average blood pressure also hit an all-time low of 1.09 last year, up from 1.30 just two years ago. This means that China’s birth rate is now even lower than Japan, which has long been known for its aging population.
CFOTO/Future Publishing/Getty Images
A nurse takes care of a newborn baby at Women’s and Children’s Hospital in Fuyang, Anhui Province, on August 8, 2022.
Demographic trends can have a significant impact on an economy’s growth potential. Decreasing labor supply and increasing health and social spending could lead to widening budget deficits and increasing debt burdens.
A reduction in the workforce could reduce savings, which could lead to higher interest rates and reduced investment. For example, demand for housing may decline in the long run.
“In the 2040s, aggregate growth will be impossible due to population decline,” Scissors said. “Without radical policy changes, China will not recover. The 2030s will be even worse than the 2020s.”
Chinese leaders, who met this month to discuss economic goals and policies for the coming year, said they would step up fiscal and monetary support for the economy. Officials even promised to step up “economic propaganda” and “public opinion guidance” to boost confidence.
Chinese media have reported that the government may again set its economic target for next year at around 5%, which appears ambitious compared to its own forecasts.of formal The target is expected to be announced in March, when China holds its annual legislative conference.
However, these moves will not help solve structural problems.
“Policymakers believe that with a little bit of stimulus and an upturn in sentiment, the economy can get back on a stronger trajectory,” said Julian Evans-Pritchard, head of China economics at Capital Economics. It seems like there is.” He also said officials seemed hopeful that setting ambitious growth targets would lead to improved confidence.
03:04 – Source: CNN
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“While there is some truth to this, we think officials may be underestimating the extent to which China’s slowdown is structural in nature and cannot be easily reversed. ”
“Most of the economic slowdown reflects structural declines in productivity and income growth, rather than weak business cycles that can be addressed through demand-side stimulus and other confidence-boosting measures,” he said. Stated.
Scissors said that even if the Chinese government resorted to traditional strategies such as increased borrowing, it could accelerate growth as early as 2024, but that would be “an economic painkiller, not a cure.” That’s what it means.