For more than 30 years, China has been a symbol of sustained development and to some extent progress. About 1.4 billion Chinese people buy a lot of foreign products like Hollywood movies (USA), Korean electronics and even iron ore from Australia, through which almost the entire global economy is boosted.
It seems, at least on the surface, that sugar consumption is an engine that never stops.
But now, that engine is showing signs of slowing, if not reversing. According to the newspaper, this is creating a risk the new York TimesNot only for Chinese households, but for the economies of the entire planet.
rise through globalization
Perhaps more than a quarter of a century later, China is seen as the ideal center of globalization. Because of him this country has earned a lot of money. But rising risks in recent weeks suggest that China is about to plunge into severe deflation.
First, there are signs of a significant slowdown in China’s economy from early 2023. Hopes of a strong growth return were dashed after excessive COVID-19 restrictions were lifted. smoke clouds.
And the data released this week on Chinese exports is not very positive. Exports fell for the third month in a row while imports fell for the fifth month in a row – indicating a weak economic outlook for the so-called “world factory”.
Organic produce in a Chinese supermarket. Photo: Unsplash
Then came the news that the prices of food to apartments have fallen in China. From which it can be seen that the business activity of the country is very weak. the new York Times. Difficulties are deepening especially in the real estate market. For example, Country Gardens, a very large real estate company, failed to pay its bonds; The company is estimated to have lost $7.6 billion in the first six months of 2023.
For Chinese workers and families, these incidents spell trouble for them.
bad sign for the world
globally, according to the new York TimesChina’s economy has weakened, which means demand for commodities ranging from Brazilian soybeans to American beef to Italian luxury goods has plummeted. Similarly, demand for oil, minerals and other construction materials is also low.
“A slowdown in China will certainly affect the global economic outlook,” said Larry Hu, chief China economist at Australian financial services firm Macquarie. “Because China is now the number one consumer of commodities in the world. So the impact will be huge, huge.”
It seems that the old Chinese model has basically completed the task quite effectively after more than 30 years of operation. At present, China is working to transform from an economy based primarily on investment, infrastructure investment, and exports to one based primarily on domestic consumption.
According to analysis by BCA Research (Canada), over the past 10 years, China has generated more than 40% of global economic growth, compared to 22% in the US and 9% in the 20 Eurozone countries.
But China’s debt is increasing day by day. According to New York Times estimates, it now accounts for 282% of gross national product (GNP) – higher than that of the US.
Indeed, the Chinese government has launched a public spending program to encourage people to spend money and businesses to invest. But they give the impression that local governments will end up with a pile of bills.
In fact, China’s local governments are at the center of the debt crisis. They have borrowed heavily over the years to raise money to build roads, bridges and industrial parks. On a larger scale, the Chinese government is also investing money in building ports, power grids and other infrastructure, thereby boosting exports. At the same time, Chinese private entrepreneurs have founded some of the world’s most valuable and innovative technology companies.
partially in conflict with the US
In the rest of the world – especially in the US, China’s export growth has fueled unemployment, sparking a trade conflict between the two countries.
Bowls Made in China. Photo: Unsplash
The administration of former President Donald Trump has imposed a general tax on Chinese imports. The Joe Biden administration continues that policy; Most recently, it also banned investment in key Chinese sectors such as advanced computer chips.
On August 9, the US President increased sanctions on China with an executive order banning US companies from investing in industries that could enhance China’s military capabilities.
Chinese General Secretary Xi Jinping has accused the US of waging a campaign to stifle China’s development.
Faced with Washington’s confrontation with Beijing, and the COVID-19 pandemic’s difficulties in getting products from Chinese factories to retailers in North America and Europe, the country’s multinationals have gradually increased orders and factories. have been transferred to countries such as Vietnam, India and Mexico. ,
For Chinese policy makers, changing international trade has increased the urgency of transformation into an economy focused on domestic purchasing power.
Chinese people’s fascination with cash hoarding and the weakening of investment and consumption seem to indicate a general decline in confidence. It also reflects the notion that real estate is a story with a not so happy ending.
Decades of excessive investment by real estate developers has created several cities with vacant apartment blocks and incomplete projects.
However, those plans have been partially put on hold due to COVID-19. The removal of restrictive measures in December 2022 is expected to help boost consumption. But consumers are so reluctant to open their wallets that China’s National Bureau of Statistics recently stopped releasing market data.
For a long time, Chinese families have been very frugal, fearing that the country’s social safety net is not good enough. In the first half of this year, the total amount of domestic deposits in Chinese banks increased by nearly 12 trillion yuan (about $1.7 trillion), the most in 10 years.
Similar to Japan?
What happened to China has prompted many economists to compare it with Japan. In the early 1990s, Japan’s economy collapsed due to a real estate bubble, sending the country into a three-decade recession. Recession due to deflation!
In theory, deflation destroys the incentive to consume, does not encourage businesses to do business, to hire more workers. Because everyone is tightening their pockets, the expectation is that everything will be cheaper afterwards. But it pushed the entire economy into deflation.
A modern Shanghai. Photo: Unsplash
Currently, according to the new York TimesMost economists think China will escape that fate. This exemption may be withdrawn soon.
According to chief economist Bruce Pang, after years of mistreatment of private entrepreneurs, the Chinese government has recently signaled a shift to a “boost growth, drive business” mindset. About JLL Investment and Asset Management Company (based in Hong Kong – China) China.
In the most optimistic scenario, the Chinese government would make a gradual transition to slower growth, tackle factory unemployment by creating more jobs in services, while curbing the scale of the deficit. Loss in real estate.
However, bigger and worse concerns will arise if the amount of debt that China’s economy is saddled with limits the effectiveness of such a policy. That is, house prices continue to decline, the government has to pump in more money to rescue troubled banks, and money is looking for other shelters.
It is clear that the huge amount of debt is making many Chinese government officials uneasy, as it could lead to unemployment, corporate bankruptcy and social conflicts.
Such a story could be the basis for the belief that the Chinese government will try to boost the economy, even if it creates new threats to the economy, including the creation of new debt.
However, it is not easy. The fact that many foreign companies continue to focus on domestic consumption, as well as relocating factories from China, can lead to lower wages; Domestic assets also decrease. And losing the faith of large numbers of people could lead to social upheaval and unrest.
Exports and imports together make up 40% of China’s GDP. Mr. Yasheng Huang, Professor of Economics at the Sloan School of Management at the Massachusetts Institute of Technology (USA), said at a conference in May 2023.
China imports raw materials to prepare goods for export. Therefore, as China decreases exports, imports also decrease, creating a vicious cycle that reflects asset weakness. According to Mr. Yasheng Huang, this leads to rising unemployment and falling incomes.
