September 18, 2023
China’s Growth is slowing down, and the country is facing a confluence of problems such as sluggish consumer spending, a shaky property market, flagging exports amid a US drive for “de-risking,” record youth unemployment, and towering local government debt. The impact of these strains is starting to be felt around the globe on everything from commodity prices to equity markets. What’s worse, President Xi Jinping’s government doesn’t have great options to fix things. That’s sparked a discussion about whether the Chinese economy is headed for a Japan-style malaise after 30 years of unprecedented growth.
🧐 WHAT’S HAPPENING TO CHINA’S GROWTH?
Did you know that China’s economy has been growing at an average rate of 6-7% per year since 1990 ? However, in recent years, China’s growth has slowed down. According to the National Bureau of Statistics of China, the country’s GDP grew by only 6.5% in the third quarter of 2021 . This is lower than the expected growth rate of 7.5% and marks the slowest pace of expansion since the first quarter of 2020 .
The slowdown in China’s economic growth can be attributed to several factors. Firstly, China’s population is aging rapidly, which means that there are fewer young people entering the workforce . Secondly, China’s economy is transitioning from an export-driven model to a consumption-driven model . This means that China is relying more on domestic consumption to drive economic growth rather than exports. Finally, China’s debt levels have risen significantly in recent years . This has led to concerns about financial stability and the sustainability of China’s economic growth.
“The primary culprit is the property sector. This source of growth has now evaporated and won’t be coming back,” said Julian Evans-Pritchard, head of China economics at Capital Economics in Singapore.
“We have long been more bearish than most…but even we have been surprised by the speed at which growth has declined. The deceleration probably still has further to run.”
According to a recent Reuters survey involving 76 analysts both within and outside mainland China, it is anticipated that the economy will experience a 5.0% growth in 2023, a decrease from the 5.5% forecasted in the July survey. The projected growth rates range from 4.5% to 5.5%.
Although almost all economists revised down their growth projections for both this year and the next in comparison to the previous survey, the extent of these adjustments remains modest, suggesting the potential for further downgrades.
🤷🏻♂️🤷🏻♀️ SO WHAT?
So, should we be worried about China’s growth stalling? The answer is not straightforward. While China’s economic slowdown has alarmed international leaders and investors who are no longer counting on it to be a bulwark against weakness elsewhere , some experts say that this trend may not spell doom for the country in the short term .
According to a report by McKinsey Global Institute, China will remain one of the world’s fastest-growing economies over the next decade . The report predicts that China’s GDP will grow at an average annual rate of 5.5% between 2020 and 2030 . However, beyond 2030, demographic stress will be a drag on growth in what is currently the world’s second-largest economy .
It’s worth noting that China still has several strengths that could help it weather its current economic challenges. For example, China has a large domestic market with over 1.4 billion people . This means that there is significant potential for growth in domestic consumption. Additionally, China has made significant investments in technology and innovation in recent years . This could help it develop new industries and drive future economic growth.
🤔 HOW DOES THIS AFFECT ME?
If you’re an investor, you might want to consider diversifying your portfolio by investing in other countries as well. As China’s economy slows down, other countries such as India and Indonesia are emerging as new growth engines in Asia . However, if you’re planning to travel to China or do business with Chinese companies, you might want to keep an eye on the country’s economic situation and adjust your plans accordingly.
It’s also worth noting that China’s economic slowdown could have implications for global trade and commodity prices. As China consumes less raw materials and exports fewer finished goods, this could lead to lower demand for commodities such as iron ore and copper . This could have knock-on effects for countries that rely heavily on commodity exports.
While China’s growth is stalling, it might not necessarily be a cause for alarm. However, it’s important to keep an eye on the country’s economic situation and adjust your plans accordingly.
#marketwatch #china #growth #property
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