2023: China’s Economic Recovery Derailed by Slowing Growth
August 10, 2023
In 2023, China’s economy was predicted to rebound spectacularly after concluding its zero-COVID policy. However, current indicators hint towards an unfavorable outcome, with data reflecting a sluggish growth rate, a high rate of youth unemployment and potential issues with deflation, which may be more severe than previously anticipated. Today’s data release indicates a significant drop in Chinese exports, marking the worst decline since the pandemic outbreak. June’s Consumer Price Index (CPI) remained stagnant and producer prices plummeted dramatically.
The Aftermath of Ending Zero-COVID Policy
China discontinued its zero-COVID policy at a time when global inflation had already suppressed demand for its exports. Moreover, compared to developed countries, there was a lack of surplus savings to spend post-reopening. To stimulate spending, the People’s Bank of China (PBOC) lowered interest rates. However, executing further stimulus might pose challenges considering China’s hefty debt issue and the yuan’s weakness. The property market’s inflation has prompted many to reassess their wealth, while an intensifying trade war has resulted in the outsourcing of manufacturing from Western multinational companies to nations like India and Vietnam.
The Private Sector Conundrum
The private sector has been significantly impacted by the crackdowns over the past years. High-profile incidents such as the suspension of Ant Group’s IPO and the DiDi Global debacle have dampened investment interest. Furthermore, Beijing’s targeted campaigns against sectors like media, education, and food delivery have depleted the business community’s confidence. The Chinese government is attempting to mend some of the damage by attracting big U.S. industry figures such as JPMorgan’s Jamie Dimon and Tesla’s Elon Musk. Despite this, the curbs on economic activity have led many Chinese citizens and companies to save their money instead of spending or investing it.
The Deflation Threat
If deflation continues, it may lead to deflation expectations, causing demand to decline as consumers delay purchases. Consequently, businesses may experience lower revenues if they slash prices, leading to fewer jobs, wage reductions, and ultimately, decreased consumption. SA analyst Logan Kane comments on the unsettling data in his report, ‘China’s Economic Slowdown: A Wake-Up Call For The U.S. Economy,’ “Problematic China statistics range from macro statistics like GDP and unemployment to earnings…Investment in China has drastically decreased… there is an enormous debt burden… and China’s population is now declining.“