China’s economic slowdown

Among observers of global politics, one much talked about topic is the absence of Xi Jinping at two recent international conferences which he used to attend religiously in the past.

The first one was the BRICS conference in South Africa. This is the coalition of Brazil, Russia, India, China and South Africa. This group’s intended objective is to put together an international monetary system that would rival the US dollar.  This has been one of China’s long held ambitions – to come up with an international currency that would end the global monopoly of the US dollar as the dominant currency for international trade.

The second conference which Xi did not attend was the ASEAN Summit where other non-ASEAN states attended, like Australia, Japan and the United States. In both these conferences, China sent another of its officials to attend in the place of Xi.

This has caused speculations about the reasons for Xi’s absence in such conferences that attracted other heads of state. The other notable absentee was President Putin of Russia who, of course, is engrossed in his self-inflicted war in Ukraine.

As of this date, there have been two possible speculations for the absence of Xi. The two possible excuses are actually related. The first is that Xi Jinping is busy coping with a major domestic problem of an economy and a currency that are both declining.  The second is that Xi Jinping does not want to meet with the global press and answer questions on the state of the economy of China.

A recent report by Bloomberg Economics has become a major topic among business and economic broadcasters and journalists, even a topic of discussion in local business shows.

Essentially, Bloomberg Economics, one of the most detailed and trusted sources of economic analysis and forecasts,  has projected a China slowdown to near 1 percent by 2050. This is economic news that is considered shocking since China’s economic growth has outpaced the world in recent decades. One consequence of this pessimistic projection is that China will not overtake the United States as the world’s biggest economy soon.

A property slump has also been projected for China, leading to a serious decline in consumer confidence.

Before the pandemic, there was a worldwide expectation that China would become the world’s largest economy as early as the next decade. Here is what Business Economics wrote very recently: “China is down-shifting onto a slower growth path sooner than we expected. The post-Covid rebound has run out of steam, reflecting a deepening property slump and fading confidence in Beijing’s management of the economy. Weak confidence risks becoming entrenched – resulting in an enduring drag on growth potential.”

After its zero-Covid policy which caused a near economic crisis, China’s recovery led to a global belief that its economy would bounce back.  However, the recovery has continued to be weak.

There have been several reasons which have been cited as the cause for China’s economic slowdown. The first is that China’s exports have continued to tumble as a result of a global economic slowdown and the rise of protectionism by other countries. During the Covid era, the global supply chain which was heavily dependent on China’s manufacturing sector was disrupted due to the severe zero-Covid policy. This led to multinationals deciding to diversify their supply chain in order to lessen dependence on China’s manufacturing sector.

At the same time, there has been a real estate slump which has led to speculation that there could actually be the bursting of a real estate bubble in China.

For example, the Country Garden Holdings Company, one of China’s biggest real estate firms with 3,000 pending property projects, barely avoided a default.

All of this gloomy economic news has had a negative effect on consumer spending. As people held back from spending, this has added to a slowdown in economic growth.

Economists have also cited structural problems in China which pose deeper and longer term challenges. China’s population has actually begun to decrease, which has raised concerns about an aging population and weakening productivity.

Regulatory crackdowns against companies in the private sector and increased government control over the private sector have also led to loss of confidence.

The yuan, the monetary currency of China, is also weakening. At the start of this century, China was accused of keeping its currency artificially cheap.  Then, in recent years, there was a policy of managing the appreciation of the yuan. Its currency has almost reached a level where it can be considered the weakest since the start of its “economic miracle.”

On another front, China’s debt-to-GDP ratio has now overtaken that of the United States while its economic growth rate is approaching the same level as that of the US.

The International Monetary Fund had earlier forecast that China will be the main driver of global economic growth within the next five years. This IMF forecast may have to be changed because of the slowdown in the Chinese economy.

There are economists today who believe that what is happening in China is “Japanification.”  This refers to the miracle rise of the Japanese economy in the last century and its eventual stagnation at the beginning of this century.

China’s economic weakness also strengthens its global competitors – the United States, western Europe and Japan.

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