Quick Bites | Ongoing China problems

Perhaps the rule that by the time The Economist has a cover story about a particular topic, the narrative is about to shift. Maybe that will be true for the weakness of the post-pandemic economy in China, and we’ll be surprised by a massive new stimulus program, jolting economic growth back into action. But maybe not.

Source: The Economist 


When China finally reopened its economy earlier this year after 3 years of extreme COVID restrictions, most thought growth would surprise on the upside. But we have been sorely disappointed, and so far, it has been anything but a strong recovery. This really matters, because China has been a reliable engine powering global growth for three decades, becoming the world’s second-largest economy. That engine, for now, looks to have stalled.

Instead of the robust bounceback much of the world experienced with its pandemic reopening, the Chinese economy is muddling along with weak growth, falling prices, a deflating real estate bubble, weak household demand, and mass unemployment among young adults.

Cracks have been evident in the Chinese growth steamroller for years, as its government exerted a more doctrinaire and rigid hand with businesses, constricting private-sector investment. China’s growth has been excessively reliant on infrastructure and real estate investment — both built on a lending bubble — rather than shifting toward broad consumer demand.

Source: World Bank


Amid intensifying state control of Chinese business and geopolitical tension, American and European governments are restricting investment in China, limiting its ability to expand in high-growth sectors like semiconductors and aerospace.

That creates problems for its trading partners (like Australia) and new geopolitical risks.

Rather than grapple with the underlying problems, the Chinese leadership has focused on hiding them. After recent reports showing unemployment among young adults reached 21.3% in June, the government suspended the release of the data.

The usual government stimulus strategies — loosening lending and pumping money into the economy — may be less effective at boosting growth than they were in the past. Chinese consumers and businesses have become more inclined to hoard cash, as they have little confidence in an effective social security net (based on their pandemic experience).

For Australia, trade with China is vitally important. Indeed, as many as 120 countries worldwide count China as their largest trading partner. This means that Chinese economic dysfunction could ripple across the global economy and financial markets in unpredictable ways.



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