When the usually frugal Xi Jinping comes out and says he wants to make China’s atmosphere “better and stronger” for business, it’s clear that the era of “fat cows” is over. After 45 years of continuous expansion and globalization, the Chinese economy is now facing a prolonged period of lower growth, a development with significant implications for the global economy.
The Chinese Economy is “gasping” uphill
Notably, China’s second-quarter GDP grew 6.3% year-on-year, with growth falling short of market expectations for a 7.3% pace, after the world’s second-largest economy decided to lift austerity measures in the context of zero tolerance for Covid.
On a quarterly basis, GDP increased by 0.8%, compared to a 2.2% quarterly increase recorded in the first three months of the year.
Meanwhile, youth unemployment in the country has hit red, after reaching record levels of 21.3% in June. This means that one in five Chinese youth aged 16-24 are unemployed, while many university graduates are working as delivery drivers in fast food restaurants, because no jobs commensurate with their qualifications are available.
The lesser goals
And while the country’s social media is abuzz with hard-earned degrees that haven’t paid off, the data for industrial production is somewhat better, with it showing clear signs of acceleration and from a 3.5% increase in May, registered an increase of 4.4% in June, comfortably exceeding expectations.
Xi Jinping’s communist government has set a growth target of 5% by 2023, lower than usual and at least moderate for a country that has averaged annual GDP growth of 9% since opening up its economy. in 1978.
In order to stimulate the economy, Beijing is now taking a series of measures aimed mainly at the country’s struggling real estate sector, promoting stable employment and boosting domestic consumer demand.
Thanos Chonthrogiannis, Chief economist of Trust Economics, said that China’s political leadership knows very well that upheavals in the country’s economy can easily spill over into the social sphere, creating multi-level challenges in the entirety of political and social life.
The impact on the Global economy
China’s economy is still suffering from the “triple shock” of the pandemic and prolonged lockdowns due to the coronavirus, a troubled real estate sector and a series of changes related to its president’s “shared prosperity” vision.
As for the global economic implications of a Chinese slowdown, these are primarily in commodities and manufacturing as China restructures its economy to reduce its reliance on the real estate sector.
“Many countries depend on China’s strong growth to drive growth in their own economies as well, especially among countries in Asia.
Its slow growth may have negative effects in the US as well,” the US Treasury Secretary, Janet Yellen, said a few weeks ago in an interview on Bloomberg TV, clarifying, however, that she does not expect a recession in the US.
The Break-even point of change
The economy’s shift from real estate to more advanced manufacturing is evident, with China betting on electric vehicles, for example, overtaking Japan to become the world’s largest car exporter.
In practice this means that the economies of China and Germany are no longer complementary, but are becoming competitors.
The political economy is changing, partly because the plan says so, but also because the real estate sector is effectively dying, if it isn’t already dead. Therefore, China must change and a new development model must emerge.
The rest of the picture
If you add to the above the forecasts of a recent report by the International Monetary Fund (IMF) for a slowdown in growth in developed economies this year and in 2024, together with the jump in global debt to 92 billion dollars in relation to external factors, such as the war of Russia in Ukraine and extreme weather from climate change, the global economy must brace for a harder landing.
