Xi Jinping will take a public oath of allegiance to the constitution on March 10, 2023. Xie Huanchi/Xinhua via Getty Images
China is transitioning from an old to a newer economy, Standard Chartered’s Bill Winters told CNBC.
The country’s new economy is booming with double-digit growth rates, although confidence does not reflect this.
China is delaying the transition to avoid disrupting the financial system.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by a real editor.
China’s current woes are evidence of a major economic shift that is taking place, Standard Chartered CEO Bill Winters said on Monday. According to him, the country would benefit from a boost in confidence.
“I think China is going through a significant transition from the old economy to the new economy. If you look at the new economy, as many of you have done – I have – it is booming, it is absolutely booming, with growth rates well into the double digits,” he told CNBC during a panel discussion at the World Governments Summit in Dubai.
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Winters gave examples of promising economic expansion. These include China’s dominance in electric vehicles and the growth of sustainability-related financial and industrial sectors. Yet neither domestic savers nor foreign investors show much confidence in the potential of China’s economy. According to Winters, this is the biggest problem the country has to overcome.
Offshore investors have withdrawn from the country’s stock markets in large numbers, resulting in a $7 trillion decline since 2021. Analysts who are significantly less optimistic than Winters have warned that this could be a permanent pullback. Trust was strained from several sides. Beijing’s crackdown on the country’s emerging tech sector is not sitting well with investors. Additionally, plunging conditions in the real estate market are causing panicked dealers to leave the country.
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China’s economy is struggling with deflation
A healthy real estate industry is crucial to the country, accounting for 70 percent of household wealth and about a quarter of China’s GDP. The current problems are due to the sector’s excessive indebtedness. However, the lack of consumer trust doesn’t really help either. Since the pandemic, domestic consumers have aggressively focused on saving. This has weighed on the country’s growth and the world‘s only deflationary economy.
Some expect authorities in Beijing to restore confidence with a major stimulus program and give households incentives to spend. But China has not yet responded with such force. So far, interest rates have been reduced, the economy has been stimulated to a limited extent and the regulations for real estate ownership have been relaxed.
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“They’re trying to manage this transition without disrupting the financial system, which we’ve never been able to do in the West,” Winters said. “Every major industrial transition was associated with a Great Depression or a global financial crisis. They’re trying to avoid it, which means it drags on. I think they’ll come out of the back end just fine.â€
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