China’s “solid” economic growth has been met with skepticism from many Chinese individuals and business owners who feel the impact of what seems like a recession. As overseas orders have dried up and losses mounted, one LED screen distribution company in Shenzhen has had to slash prices and lay off employees. The business owner is even considering closing the business altogether.
The global financial crisis in 2008 left many Chinese business owners disillusioned with the future of the Chinese economy, and the current situation feels eerily similar. While China has not technically entered a recession, the second-quarter GDP growth of 6.3% fell short of expectations, indicating economic pain beyond the reported figures.
Factors contributing to China’s economic struggles include the ongoing COVID-19 pandemic, a downturn in the property market, and regulatory measures targeting large domestic technology companies. Factory prices fell at the fastest pace in over seven years in June, and Chinese factory exports experienced their largest annual drop since the early days of the pandemic. Youth unemployment has reached a record high, and China’s property market, which initially showed signs of recovery, has declined again.
Private business investment, a significant driver of job creation, has also slipped this year, resulting in sustained negative growth. Some economists argue that China may be experiencing a “balance sheet recession,” characterized by heavy debt and low confidence, making it difficult for policymakers to stimulate the economy through interest rate cuts.
China’s economic struggles also have global implications, particularly for countries like Australia that rely on Chinese demand for resources. The underperformance of China’s economy threatens further trouble for the global economy, as other Western economies remain at risk of recession.
China’s economic challenges stem from a combination of self-inflicted wounds and external factors. Weak demand in Western countries, geopolitical tensions, high debt levels, an aging population, and regulatory crackdowns have all contributed to the current state of China’s economy. Despite this, the Chinese government has refrained from massive stimulus, instead opting for small interest rate cuts, reflecting a shift in policy focus.
However, not all is lost for China. The country is set to meet its official growth target of around 5% this year, surpassing forecasts for the US and euro zone. Industries prioritized by the Chinese government, such as semiconductors, are receiving significant investment, and China became the world‘s largest car exporter in the first quarter. Some individuals, especially those in larger cities, express optimism and an urge to spend following the easing of COVID-19 restrictions. However, those in smaller cities and towns, as well as individuals who have been directly affected financially by the pandemic, remain cautious about their spending.
Overall, China’s economic challenges are multifaceted, impacting various sectors and individuals. The government’s approach to addressing these issues remains balanced, with a focus on long-term preparations and managing economic growth. While China’s economic struggles have global implications, it is yet to be seen how the country will navigate its way through this period of uncertainty.