This Year’s Worst Yet, Next Year Looks Even Bleaker for Chinese Economy

CNN "Government Shows No Willingness for Reform"

On the 27th (local time), the US CNN reported that the Chinese economy, which experienced its worst year this year, is expected to worsen further next year. While the economic downturn stems from long-standing structural problems, there is an analysis that the Chinese government shows no willingness to reform.

Most economists forecast that China will achieve the government’s growth target of about 5% this year despite adverse factors such as the real estate crisis, weak consumption tax, and high youth unemployment rate. However, this figure is smaller compared to the over 6% annual growth rate before the COVID-19 pandemic. Since Xi Jinping’s administration began in 2021, the average annual growth rate over the past decade has remained at 6.7%. This is also insignificant compared to the 10.5% average annual growth rate from 1991 to 2011 following the 1978 reform and opening-up.

This slowdown in growth is analyzed from a macroeconomic perspective as a failure of structural reform. Derek Scissors, a senior researcher at the American Enterprise Institute (AEI) think tank, diagnosed, "The previous Hu Jintao administration supplied liquidity to the economy in 2009 during the height of the financial crisis to stimulate growth," adding, "The Xi Jinping administration was reluctant to control, which caused structural problems." Logan Wright, head of China market research at the private research institute Rhodium Group, also said, "The slowdown of the Chinese economy is structural," explaining, "It is because the unprecedented expansion of credit and investment over the past decade has ended."

The zero-COVID policy, which aimed to completely block the spread of COVID-19, and crackdowns on private enterprises also damaged market confidence, pushing the economy into the risk of deflation (falling prices amid economic recession). In addition, the real estate crisis symbolized by the bankruptcy of Evergrande caused stagnation in the financial sector, and local governments are heavily indebted. The youth unemployment rate worsened to the point where the government stopped releasing statistics. Foreign companies began withdrawing from China to avoid intensified surveillance, and foreign investment also flowed out.

The problem is that the outlook for next year is even bleaker and is expected to worsen thereafter. The International Monetary Fund (IMF) projected last month that China will grow 5.4% this year but gradually decline to 3.5% by 2028 due to declining productivity and aging population.

The biggest reason for the long-term slowdown in economic growth is attributed to the population structure. Last year, China’s population was 1.411 billion, marking the first decline since 1961. However, there is an analysis that the Chinese government has no intention to address this. Julian Evans-Pritchard, head of China economics at Capital Economics, said, "It seems policymakers believe that if they introduce some stimulus measures and improve sentiment, the economy can return to a path of stronger growth."

There is also a view that without significant economic reform measures, China could fall into the ‘middle-income trap,’ where it grows rapidly but fails to cross the threshold into a high-income country. Some economists compare this to Japan’s ‘lost 20 years’ of stagnation and deflation following the collapse of the real estate bubble in the early 1990s.

This content was produced with the assistance of AI translation services.