Published February 28, 2024
The Chinese economy – would you bet on red to remain in the black?
• The Chinese economy has until recently been growing exponentially.
• Bullish behavior from the US has had a negative effect on the Chinese economy.
• It will probably take a lot more to upset the country’s growth long-term.
It’s no secret that China’s recent economic performance is a far cry from its persistent high growth patterns over the last three decades. In those thirty or so years, China’s economy transformed into an upper-middle-income status from one that was low-income. Just a quick glance at market exchange rates shows a GDP of $18.3 trillion in 2022. This was 73% of the United States’ GDP, with China’s per capita income now approximately $13,000. This equates to around 17% of the United States’ per capita income. When we consider China’s was less than two percent of the US’ 34 years ago, the country’s economic growth has been remarkable.
What goes up tends to come back down, though, and economists have long forecasted an economic collapse for China due to various fragilities. For instance, the country’s growth has been powered by investments in physical capital, particularly real estate. This, in turn, has been financed by a banking system that lacks certain efficiencies. Now, it seems those forecasters were correct, as China struggles with rising debt levels, crashing stocks, weaker consumer confidence, a diminishing labor force, and an unraveling property market.
Despite the country’s economic struggles, China still sits at the top of the pile in terms of being the world’s leading manufacturing force, according to Eurizon strategists. Compared to its rivals, China’s manufacturing capacity is far greater. Coupled with the fact that export prices have risen by 30% and 31% in Mexico and Vietnam respectively over the last three years, two of China’s most prominent competitors, it seems China will continue to reign supreme as the world’s most dominant manufacturer.
China’s labor force far outweighs the combined economies of the US, Japan, Canada, the EU, India, Korea, Vietnam, and Mexico, estimated to be around 212 million. This backs up a point made by Eurizon strategists, Stephen Jen and Joana Freire. “We believe the fact that export prices have risen more rapidly than general inflation – a remarkable fact in a period of a strengthening dollar – indicates stresses and pressures on the manufacturing capacity in these countries, including shortages of appropriate workers, infrastructure, and transport.”
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SOURCE: www.techhq.com
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At the end of January, a Hong Kong judge ordered the liquidation of the heavily-indebted Chinese real estate giant Evergrande. It was just the latest piece of bad news for China’s economy, after a year of disappointing growth, high youth unemployment, and various surveys and media reports that show a lack of confidence amongst China’s entrepreneurs and consumers.
Some observers have been predicting an economic collapse in China for decades. Others have long predicted that China would be stuck in a middle-income trap or some other type of economic stagnation. Might some of these predictions prove right this time? What does the Year of the Dragon have in store for consumers, companies, and markets? What should we look out for this year to understand both China’s real economy and its financial sector?—The Editors
