This was supposed to be the year
that China’s economy came roaring back.
What we’ve had instead are signs that this economy is struggling.
Faltering growth.
Soaring youth jobless rates.
An economy on the brink of deflation.
After decades of a stunning economic rise,
China's challenges are mounting.
So, what's going on with the $18 trillion economy?
And why does it matter for the rest of the world?
There were Covid restrictions
all over the country last year.
And when those restrictions ended,
everyone expected consumers would come back and spend.
Factories would start making product again
and China would once again
be a global motor for growth.
China’s economy losing further momentum
They are out – and oh.
Wow ooh ah, not good, alright.
China slowing down of course
affects Asia, affects the world.
When we talk about why the economy is slowing now,
there's three things I would point to.
One, there's a problem with the real estate market here.
The government identified that there was a bubble in property
about two or three years ago,
and started to take steps to try and deflate that bubble.
For decades, China's booming property market
has meant that owning a property
is a sure fire way of increasing your personal wealth.
The problem was the crackdown on the property sector,
cracking down on how much debt it had
happened very intensively and far faster
than the economy could really catch up with.
What's happened as a result, though, is now in 2023,
you've seen a very dramatic, in some places, drop in home prices.
That leads to the second point I would make,
which is about confidence.
When those home prices fall,
even if people are not earning less in terms of salary, they are feeling poor.
At the beginning of the year,
as China reopened its borders,
we were expecting to see a big flood of consumer spending,
what we call revenge spending.
And we did see that happen for quite some time,
at least the first few months of the year.
But now what's happening is we’re seeing that
consumer spending start to drop off.
One of the reasons why is because
we're seeing people save their money rather than spend it.
The third thing I would point to is there's way too much debt.
10-15 years ago, when the economy slowed,
the government had a very good playbook
was to to borrow at the local level and build more roads,
more ports, more airports, more infrastructure,
that would lead to more demand for things like cement and steel.
But now, there's way too much debt, at the local level already.
So the government is looking for new ways to get the economy going again.
How did China become the world’s second-largest economy?
It all goes back to 1978. That’s when Deng Xiaoping was in charge.
Today he’s known as the “Architect of Modern China”
for the major reforms he pushed through.
But even he might be surprised by the scale of change unleashed.
By opening up to trade and investment,
China kick-started a 45 year transformation
that took it from a largely agricultural society
to the economic powerhouse we know today.
Even though there's a lot of concern about growth here in China,
I think it's important to remember that the economy is still growing,
and most economists are still expecting
For any other country, they would be ecstatic
by a growth pace of that speed.
But here in China, the problem is relative to the past.
Now, I've been a journalist here in China since 2003.
And back then, regularly the economy is growing
And so relative to that, it feels much slower now.
The major problem here is that, you know,
China is moving off its old economic growth model,
but it hasn't moved comfortably into what's next.
China's economic model has been incredibly successful
at providing low cost goods to the West.
That's lifted hundreds of millions of people within China out of poverty.
And China's economic model continues to do that.
But what it seems to be struggling with now
is getting past that middle income trap.
A lot of this infrastructure investment
in particular has led to a lot of overcapacity
and it's led a lot of these local governments
to take on debt that they haven't really been able to figure out a way out of right now.
Restoring confidence is key.
Businesses have been battered by years of pandemic controls
and crackdowns that Beijing is now struggling to unwind
in a bid to bolster growth.
The first sign of trouble came in China’s tech sector in November 2020.
All we know so far is China has suspended the HK and Shanghai IPOs.
Fintech giant Ant Group - a unit of billionaire Jack Ma’s empire
was gearing up for what was set to be the world’s biggest initial public offering.
But just days before going public, Chinese authorities pulled the plug.
That started a chain of events that shook the markets.
These were unprecedented, sweeping clampdowns on the private sector,
everything from property and education,
as well as technology that wiped out billions in market value for many companies,
as well as the wealth of certain billionaires, too.
To reassure investors, Beijing has been sending the message
that it's back open for business with the world.
Rolling out the red carpet for the likes of JPMorgan’s Jamie Dimon and Elon Musk
after years of a tough operating environment under Xi Jinping.
But the Chinese government knows that getting the private sector
back up and running is really critical if it wants to kind of restore growth
in the economy.
Challenges on the diplomatic front,
especially between China and its great rival the US,
have also made investors wary, clouding the economic outlook.
Despite US officials flying to Beijing in recent months to reset trust and ties,
the two superpowers remain at odds
over issues ranging from Taiwan to access to high-end tech.
Already we're seeing a move to the US would say
de risk from Chinese supply chains.
There is an increased move among Western multinationals to try
and address that by buying more of their goods
from places like India or countries in Southeast Asia.
But if the relationship with the West is going to cut China off
from some of these key new technologies,
that's going to be trouble in the long run.
The US and China are the world's two biggest economies.
The value of their trade and the value of the trade of goods
I think the Chinese are concerned about sluggish growth in their economy.
That relationship between the US and China,
whether it be trade, manufacturing, you name it,
has been hugely beneficial for both economies
and it has huge spillover effects for the rest of the global economy.
China is hugely important to the world
because it is such an important end consumer for products,
especially in the commodities and energy world.
And so if China's economy is not going to recover the way that
the world had hoped.
It's going to mean other countries
are going to where they can sell their goods and services to.
In a connected world where we live
that's going to have a ripple effect across the globe.