China’s anticipated economic recovery in 2023 has fallen short, raising concerns on Wall Street. Despite expectations of a boom following the end of Beijing’s zero-COVID policy, China’s recovery from the pandemic has been lackluster. Industrial production and trade, both imports and exports, have disappointed. High levels of debt, particularly in the property development sector, weigh heavily on the economy. Trading partners express concerns over human rights abuses and government intervention. The private sector, expected to drive the recovery, is cautious.
China’s failure to achieve a robust economic rebound indicates the demise of the old China. The burst of the property market bubble is draining resources from households, banks, and local governments. Protectionist policies adopted by countries once supporting free trade further impact China’s growth prospects.
Beijing does not seem inclined to reverse this downward trend, as President Xi Jinping has prepared the nation for lower growth, aligning with his preferred economic structure. Financial institutions like JPMorgan question investing in China, and investors like Stanley Druckenmiller express skepticism about China’s future economic power.
The anticipated exuberant recovery has given way to the final stages of the Chinese economic miracle. Weakness across sectors, including contraction in manufacturing activity and underperformance in industrial production and the property market, indicate a “head fake” rather than sustained growth. The major drivers of China’s economy, such as property and exports, are expected to remain dormant, and the transition to a consumption-based model is hindered by the persistent reliance on exports.
China’s struggles stem from deeper structural issues, including high levels of debt driven by ill-advised investments in infrastructure and property development. Beijing acknowledges the debt issue and curtails the supply of cheap credit, but this deleveraging process poses significant risks. Pervasive property-related debt burdens homeowners, developers, banks, and local governments, impacting society with deflationary pressures and slow growth.
In a world characterized by protectionism, China’s economic model encounters challenges. As the shift away from China as a global manufacturing hub and supply chain center takes place, other countries may experience inflationary pressures and need to seek alternative sources of growth. Geopolitical tensions and cautious investment further restrict China’s ability to rely on trade as a means to stimulate its economy.
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