China’s magic trick fails to hide economic turmoil
Writing has been on the wall for a decade but now it is too large for the Party to ignore
Economic number-crunching has become a fine art in China. It resembles a data-driven magic trick with Chinese characteristics.
Earlier this week, the National Bureau of Statistics released a raft of figures on the state of the world’s second-largest economy. But the stats failed to ease growing fears about the ruling Communist Party’s ability to solve what is now a “crisis of confidence.”
The writing has been on the wall for more than a decade. It simply became too large to ignore after two years of Covid-19 lockdowns plunged the economy into a deep freeze.
“The realities of a still-shrinking property sector, limited consumer spending, falling trade surplus, and battered local government finances mean that actual growth in 2023 was more like 1.5%,” the Rhodium Group revealed.
“Looking ahead, China may see a cyclical recovery to perhaps 3% [or] 3.5% growth in 2024 as property bottoms out, although [a] structural slowdown will remain the dominant story for years to come,” the research consultancy concluded in a report.
Behind the numbers:
- Last year, official GDP growth came in at 5.2%. But that looked seriously bloated. This year’s projection is roughly the same, despite a property crash.
- Up to 90% of household wealth in China is tied up in real estate, which makes up roughly 30% of GDP.
- Local government debt has also ballooned to around US$11 trillion, while crippling youth unemployment and stagnating wages pose a risk to stability in China.
- Consumer spending has continued to shrink on big-ticket items amid China’s stock market mayhem. Up to $6 trillion has been wiped off the value of shares in the past three years before the government was forced to act.
They simply no longer trust China’s opaque political system.
Delve deeper: President Xi Jinping’s decision to put national security at the top of his agenda has scared off foreign investment and multinational corporations. They simply no longer trust China’s opaque political system.
Between the lines: “China’s past success in attracting overseas investment has led some officials to develop a complacency bordering on arrogance,” commentator Wang Xiangwei, the former editor-in-chief of the South China Morning Post, wrote on Substack.
Wait for it: “[They believe] the country’s middle class of over 400 million is too big a market to miss, and that investors, although burned, would return. The faster they dismiss that thought, the better,” Wang said.
Big picture: China can also forget about exporting its way out of trouble. The United States, the European Union and other major allies are threatening to impose stringent tariffs on a flood of Chinese-made electric vehicles to protect their own EV industries.
China Factor comment: Brazil, part of the BRICS club which includes China, has “already launched anti-dumping probes” after a tsunami of cheap Chinese imports. The lines in the Copacabana sand have already been drawn.