China: The end of the economic miracle?
China’s economy, which has been growing at an unprecedented rate for almost four decades, is facing a slowdown and a series of challenges that could undermine its future prospects. Is the Chinese miracle coming to an end? This is the question that was discussed on the French TV show “C dans l’air” on December 9, 2023, with the participation of several experts and journalists.
The impact of the Covid-19 pandemic
One of the main factors that has affected China’s economy in recent years is the Covid-19 pandemic, which originated in the city of Wuhan in late 2019. The Chinese authorities reacted swiftly and decisively to contain the outbreak, imposing strict lockdowns, mass testing, and contact tracing. As a result, China was able to largely control the spread of the virus and resume economic activity earlier than most other countries.
However, the pandemic also exposed some of the weaknesses and vulnerabilities of the Chinese model, such as its dependence on exports, its lack of social safety nets, and its debt-driven growth. The global demand for Chinese products plummeted as many countries faced recessions and lockdowns. The Chinese consumers, who were supposed to take over as the main engine of growth, became more cautious and frugal, as they faced uncertainty and insecurity. The Chinese government, which had already accumulated a huge amount of debt to stimulate the economy after the 2008 global financial crisis, had to resort to more borrowing and spending to cope with the pandemic.
According to the official statistics, China’s GDP grew by 2.3% in 2020, the lowest rate since 1976, and by 8.1% in the first three quarters of 2021, below the expectations of many analysts. The recovery has been uneven and fragile, as the country still faces the risks of new outbreaks, supply chain disruptions, power shortages, and inflation.
The challenges of the real estate sector
Another major challenge that China’s economy is facing is the crisis of the real estate sector, which accounts for about a quarter of the GDP and employs millions of people. The sector has been booming for years, fueled by cheap credit, urbanization, and speculation. However, the sector has also become a source of instability and inequality, as it has created a huge bubble of overvalued and unsold properties, a massive debt burden for developers and local governments, and a widening gap between the rich and the poor.
The most emblematic case of the real estate crisis is that of Evergrande, the second-largest property developer in China, which is on the verge of defaulting on its debts of about $300 billion. The collapse of Evergrande could have serious consequences for the financial system, the construction industry, the suppliers, the investors, and the homebuyers, who have paid deposits for unfinished apartments. The Chinese authorities have tried to contain the fallout of Evergrande’s troubles, by imposing stricter regulations on the sector, facilitating debt restructuring, and providing liquidity to the market. However, the authorities have also made it clear that they will not bail out Evergrande or other troubled developers, as they want to avoid moral hazard and encourage more prudent and sustainable practices in the sector.
The real estate crisis could also have a broader impact on China’s economic model, as it could signal the end of the easy money and the debt-fueled growth that have characterized the country’s development for decades. The Chinese government has announced its intention to shift from a quantity-oriented to a quality-oriented growth, and to pursue the goal of “common prosperity”, which implies a more balanced and inclusive distribution of wealth and opportunities. However, this transition could be difficult and painful, as it would require structural reforms, social adjustments, and political trade-offs.
The tensions with the rest of the world
A third challenge that China’s economy is facing is the increasing tensions and conflicts with the rest of the world, especially with the United States, its main rival and trading partner. The relations between the two countries have deteriorated significantly in recent years, due to disputes over trade, technology, human rights, security, and geopolitics. The Covid-19 pandemic has exacerbated the mutual mistrust and hostility, as both sides have blamed each other for the origin and the handling of the virus.
The trade war that was initiated by the former US president Donald Trump in 2018 has not been resolved by his successor Joe Biden, who has maintained the tariffs and the sanctions imposed on Chinese goods and entities. The two countries have also engaged in a technological competition, which has involved the banning or restricting of Chinese companies such as Huawei, TikTok, and WeChat in the US market, and the blocking or limiting of American companies such as Google, Facebook, and Twitter in the Chinese market. The two countries have also clashed over human rights issues, such as the situation of the Uyghurs in Xinjiang, the pro-democracy protests in Hong Kong, and the status of Taiwan. The two countries have also competed for influence and leadership in the Asia-Pacific region and beyond, where they have supported or opposed different allies and adversaries.
The tensions and conflicts between China and the US have created uncertainty and instability for the global economy, as they have disrupted the flows of trade, investment, innovation, and cooperation that have benefited both sides and the rest of the world. The different disputes between the United States and China have also increased the risks of a military confrontation, which could have catastrophic consequences for the regional and the global security. The two countries have tried to avoid a complete breakdown of their relations, by maintaining some channels of dialogue and negotiation, and by cooperating on some common challenges, such as climate change and nuclear proliferation. However, the prospects of a lasting and comprehensive resolution of their differences remain slim, as both sides have divergent interests, values, and visions for the world order.
Conclusion
China’s economy, which has been the main driver of the global growth and the main source of the global opportunities for the past four decades, is facing a slowdown and a series of challenges that could jeopardize its future performance and potential. The Covid-19 pandemic, the real estate crisis, and the tensions with the US are the most pressing and visible problems that China has to deal with, but they are not the only ones. China also has to cope with other issues, such as the aging and the shrinking of its population, the environmental degradation and the climate change, the corruption and the inefficiency of its institutions, and the social discontent and the political dissent of its people.
China is not doomed to fail, as it still has many strengths and resources, such as its large and dynamic market, its skilled and hardworking workforce, its advanced and innovative technology, its ambitious and visionary leadership, and its rich and diverse culture. China also has the capacity and the willingness to adapt and to reform, as it has demonstrated throughout its long and turbulent history. However, China also faces many uncertainties and difficulties, as it has to balance and to reconcile the demands and the expectations of its domestic and its international stakeholders, and to navigate and to shape the complex and the changing landscape of the 21st century.
