The Daily
China’s Economic Rebound Hits a Wall
Mon Jul 17 2023Description
China's economy has faltered in recent years, with GDP growth projected to be around 5% this year. The slump is attributed to a real estate crash, foreign investors' perception of China as an unsafe place to invest, and government measures affecting business sentiment. Youth unemployment is at a record high, and young workers are facing challenges in finding good jobs. The Chinese economy is transitioning to a new phase, which may be bumpy.
Insights
China's economy faces challenges
China's economy, once a growth driver and the envy of the world, has faltered in recent years. After an initial blip of activity following the lifting of COVID restrictions, China's economy has not rebounded as expected. China's GDP growth is projected to be around 5% this year, a significant drop from previous years. Three key factors contribute to China's economic slump: a real estate crash, foreign investors' perception of China as an unsafe place to invest, and government measures that have affected business sentiment.
Real estate bubble and economic downturn
Real estate is the largest sector in China's economy, accounting for about a quarter of all economic activity and serving as a way for Chinese people to accumulate wealth. However, overbuilding and a property bubble have led to declining prices and eroded confidence. This decline in property prices contributes to the overall economic downturn in China.
Foreign investment challenges
Foreign investment in China has not increased as expected after COVID-19 measures were lifted. Concerns about China's reliability have led companies like Apple to move production to other countries. China's crackdown on consultants providing reliable information and geopolitical tensions with the US have further contributed to the worsening relationship. Changes to Beijing's counter-espionage law and raids on American firms' offices have made it hard for companies to make long-term commitments in China.
Youth unemployment and economic transition
Youth unemployment in China is at a record high near 21%. Young workers are particularly affected by the economic downturn, with college-educated young people facing the prospect of going back to factory jobs. Even government jobs are becoming incredibly competitive. China's largest state-run banks have lowered interest rates on deposits to encourage spending. Raising exports could create more jobs and prompt faster growth, but there isn't much demand for Chinese goods currently. The Chinese economy is transitioning to a new phase, which may be bumpy.
Chapters
China's Economic Slump
00:01 - 07:48
- China's economy, once a growth driver and the envy of the world, has faltered in recent years.
- After an initial blip of activity following the lifting of COVID restrictions, China's economy has not rebounded as expected.
- China's GDP growth is projected to be around 5% this year, a significant drop from previous years.
- Three key factors contribute to China's economic slump: a real estate crash, foreign investors' perception of China as an unsafe place to invest, and government measures that have affected business sentiment.
- Real estate is the largest sector in China's economy, accounting for about a quarter of all economic activity and serving as a way for Chinese people to accumulate wealth.
- Local governments heavily rely on real estate development to generate revenue for basic services like healthcare and education.
- However, this has led to overbuilding and a property bubble that is starting to burst in some cities.
- The decline in property prices erodes confidence and contributes to the overall economic downturn in China.
Foreign Investment Challenges
07:24 - 15:20
- Nan Chang, a city in Eastern China, built up quickly but lacks industries and good jobs.
- The city has about 20% vacancies and falling prices.
- Foreign investment in China has not increased as expected after COVID-19 measures were lifted.
- Companies like Apple have moved production to other countries due to concerns about China's reliability.
- China's crackdown on consultants providing reliable information is causing discomfort for foreign businesses.
- Geopolitical tensions between the US and China have contributed to the worsening relationship.
- Changes to Beijing's counter-espionage law have made foreign businesses uncomfortable.
- Officials raided the offices of two American firms, making it hard for companies to make long-term commitments in China.
- Foreign direct investment in China fell from $100 billion to $20 billion in the first quarter of this year.
Youth Unemployment and Economic Transition
14:51 - 22:56
- Foreign direct investment in China fell to $20 billion in the first quarter, down from $100 billion the year before.
- Youth unemployment in China is at a record high near 21%.
- Young workers are particularly affected by the economic downturn.
- China's college-educated young people are facing the prospect of going back to factory jobs.
- Even government jobs are becoming incredibly competitive.
- China's largest state-run banks have lowered interest rates on deposits to encourage spending.
- Raising exports could create more jobs and prompt faster growth, but there isn't much demand for Chinese goods currently.
- China's economy may not grow at double-digit rates anymore, but it remains important globally.
- The Chinese economy is transitioning to a new phase, which may be bumpy.