The Chinese economy is moving from a growth phase to a long-term recession. This was written by The Wall Street Journal (WSJ) columnists Lingling Wei and Stella Yifan Xie.
“The problems are evident not only in China’s dismal economic data, but also in remote provinces, including Yunnan in the southwest, which has said it will soon spend millions of dollars to build a new COVID-19 quarantine facility almost the size of three football fields. He writes that his policy was liquidated a few months ago.
The authors note that over 40 years of economic growth has allowed Chinese authorities to create businesses, build real estate, and invest in an extensive road network, allowing “to lift China out of poverty and make it a global country.” A giant whose export power spreads all over the world.”
According to analysts, this economic model has exhausted itself and Beijing is running out of opportunities to expand its infrastructure. For example, parts of China have bridges and airports that are barely used, and millions of apartments are empty there, according to the WSJ. The publication highlights that the return on investment has fallen sharply in these areas.
In addition to unnecessary spending, the WSJ writes that the Chinese economy is facing a difficult demographic situation and a “widening gap” with Western countries:
This is not just a period of economic weakness, it could be the end of a long period.”
That’s why the WSJ cites the International Monetary Fund’s (IMF) forecast that GDP growth will be below 4% in the coming years, which has been as low as nearly half of the last 40 years. By contrast, London-based Capital Economics believes growth in China has slowed to 3% from 5% in 2019 and will decline to around 2% in 2030. At such a pace, the WSJ states that Beijing will not be able to achieve a doubling of GDP by 2035, as Xi Jinping determined in 2020.
What is hindering Beijing’s growth?
According to the WSJ, one of the main problems with the Chinese economy is the continuation of working with debt. According to the Bank for International Settlements, Beijing’s total debt rose to almost 300% of GDP in 2022 (less than 200% in 2012), surpassing that of the United States. The main debt burden belongs to Chinese cities. According to the IMF, Beijing limited the direct borrowing opportunities of cities, so they started to use off-balance sheet financing methods. This debt will exceed $9 trillion in 2023.
Some economists contacted by the WSJ believe that slower growth could lead to a long-term recession in the economy, as occurred in Japan after a housing crisis that led to sharp growth since the 1990s and then years of deflation.
According to a study by China’s Southwest University of Finance and Economics, the same crisis in the real estate market could happen in China: In 2018, one in five apartments in China, or at least 130 million units, was unoccupied. Many developers were on the verge of bankruptcy due to falling demand and rising inflation.
Economists believe the obvious solution to China’s problems will be a shift to improving consumer spending and services. Experts believe this will create a balanced system similar to the US and Western European economies. The WSJ cites statistics from the World Bank on this issue, which calculate that household consumption is only 38% of GDP in China and 68% in the US.