But expansion in the world’s second largest economy has been sputtering amid sluggish consumer spending, a shaky property market, flagging exports amid a US drive for “de-risking,” record youth unemployment and towering local government debt.
The impact of these strains is being felt around the globe on everything from commodity prices to equity markets.
A lot of the world’s jobs and production depends on China. The International Monetary Fund forecasts China will remain the top contributor to global growth through 2028, with a share expected to represent 22.6% — double that of the US.
Mineral-exporting countries such as Brazil and Australia are particularly sensitive to the ups and downs of Chinese infrastructure and property investment. Weak demand in China is also hurting the bottom line of automakers ranging from Stellantis to Aston Martin.
China’s manufacturing activity, as of September, has been in contraction since April 2023, bar three months. Exacerbating the outlook are US efforts to cut China off from supplies of advanced semiconductors and other technologies set to drive future economic growth — an approach officials in Washington call “strategic competition” and China decries as “containment.”
The balance sheets of cash-strapped local governments, which are already laden with hidden debt, are among the casualties of slumping property prices. Their revenue from land sales has been declining at a record clip, making it harder to reverse a drop in budget expenditure just when the economy is in dire need of fiscal support.
China’s leaders are aiming for economic growth of around 5% this year, an ambitious goal given sluggish consumer spending and a still shaky property market.
In September, with the target sliding out of reach, Beijing unleashed a package of stimulus measures including interest rate cuts to turn things around. But the vast majority of global banks are expecting China’s economy to miss this year’s goal.
Fewer than a fifth of economists surveyed by Bloomberg were predicting gross domestic product would expand by 5% in 2024.
Optimism was high as China exited pandemic curbs in late 2022 and reopened its borders that the nation would see a rapid recovery in consumer spending fuelled by “revenge shopping,” eating out and travel. That boost failed to materialise as people fretted about what weak growth means for unemployment and incomes.
The years-long real estate crisis also wiped out an estimated $18tn in wealth from households, prompting people to save rather than spend and pushing China into its longest streak of deflation since 1999, according to a Bloomberg report.
The Politburo — consisting of the Communist Party’s most senior 24 officials — vowed at a September meeting to pursue the annual economic goals and stop declines in the property market. Acting in co-ordination with the central bank, authorities have cut interest rates, unlocked liquidity to encourage bank lending and pledged up to $340bn to boost China’s equities market.
The stimulus package may lift growth as much as 1 to 1.1 percentage points over the next four quarters, according to Bloomberg Economics, which estimates this year’s boost at 20 basis points.
However, policymakers said yesterday China was “fully confident” of hitting its growth target this year but held off more stimulus, disappointing markets and fuelling concern about a lack of detail on a raft of measures unveiled last month.
Analysts warn that deep reforms to the economic system to relieve the debt crisis in the property sector and boost domestic demand are needed if Beijing is serious about resolving the fundamental obstacles to growth.
For decades, China’s economic growth has been tremendous. But now the nation is seeing a significant slowdown, with consequences for the rest of the world, including other countries and companies.
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