The past six months has brought a stream of bad news for China’s economy: slow growth, record youth unemployment, low foreign investment, weak exports and currency, and a property sector in crisis. Joe Biden described the world’s second-largest economy as “a ticking time bomb”, predicting growing discontent in the country.
China’s leader Xi Jinping hit back, defending the “strong resilience, tremendous potential and great vitality” of the economy. So who is right – Biden or Xi? As is often the case, the answer probably lies somewhere in between. While the economy is unlikely to implode any time soon, China faces huge, deep-rooted challenges.
A property crisis and poorer households
Central to China’s economic problems is its property market. Until recently, real estate accounted for a third of its entire wealth.”This made no sense. No sense at all,” says Antonio Fatas, professor of economics at the business school INSEAD in Singapore. For two decades, the sector boomed as developers rode a wave of privatisation. But crisis struck in 2020.
A global pandemic and a shrinking population at home are not good ingredients for a programme of relentless housebuilding. The government, fearing a US-style 2008 meltdown, then put limits on how much developers could borrow. Soon they owed billions they could not pay back. Now demand for houses has slumped and property prices have plunged. This has made Chinese homeowners – emerging from three years of tough coronavirus restrictions – poorer…..Continue reading…
By: Nick Marsh
Source: Is China’s economy a ‘ticking time bomb’? – BBC News
Critics:
China has an upper middle income, developing, mixed, socialist market economy, that incorporates industrial policies and strategic five-year plans.[34] It is the world’s second largest economy by nominal GDP, behind the United States, and the world’s largest economy since 2016 when measured by purchasing power parity (PPP). Due to a volatile currency exchange rate, China’s GDP as measured in dollars fluctuates sharply. China accounted for 19% of the global economy in 2022 in PPP terms, and around 18% in nominal terms in 2022.
Historically, China was one of the world’s foremost economic powers for most of the two millennia from the 1st until the 19th century. The economy consists of public sector enterprise, state-owned enterprises (SOEs) and mixed-ownership enterprises, as well as a large domestic private sector and openness to foreign businesses in a system. It overtook the economy of the European Union in 2021. Private investment and exports are the main drivers of economic growth in China; but the Chinese government has also emphasized domestic consumption.
China is the world’s largest manufacturing economy and exporter of goods. It is also the world’s fastest-growing consumer market and second-largest importer of goods. China is also the world’s largest consumer of numerous commodities, and accounts for about half of global consumption of metals. China is a net importer of services products. It is the largest trading nation in the world and plays a prominent role in international trade. China is the largest recipient of foreign direct investment in the world as of 2020, receiving inflows of $163 billion.
It has the second largest outward foreign direct investment, at US$136.91 billion for 2019 alone, following Japan at US$226.65 billion for the same period. As of 2022, China was second in the world in total number of billionaires. In 2018, it was second in millionaires with 3.5 million. According to the 2019 Global Wealth Report by Credit Suisse Group, China surpassed the US in the wealth of the top ten percent of the world’s population. China has the world’s largest foreign-exchange reserves worth $3.1 trillion, but if the foreign assets of China’s state-owned commercial banks are included, the value of China’s reserves rises to nearly $4 trillion.
China faced a mild economic slowdown during the 2007–2008 financial crisis and initiated a massive stimulus package, which helped to regain its economic growth. With 778 million workers, the Chinese labor force was the world’s largest as of 2020. It ranks 28th on the Global Competitiveness Report. Per the Global Innovation Index in 2022, China was ranked 11th in the world, 3rd in Asia & Oceania region and 2nd for countries with a population of over 100 million. It is the only middle-income economy and the only newly industrialized economy in the top 30.
It is often ranked among the world’s most innovative countries, leading several measures of global patent filings. China has the second-largest financial assets in the world, valued at $17.9 trillion as of 2021. It also has two (Shenzhen-Hong Kong-Guangzhou and Beijing in the 2nd and 3rd spots respectively) of the global top 5 science and technology clusters, which is more than any other country. As of March 2022, China has over 500 million 5G users and 1.45 million base stations installed. Almost 493 million Chinese people are categorized as middle class, and 242 million are upper middle class, according to a 2021 Pew Research Center survey.
In 2022, mainland China‘s ten largest trading partners were European Union, United States, South Korea, Japan, Taiwan, Hong Kong, Vietnam, Australia, Malaysia, and Russia. China has free trade agreements with many nations, some of which are already in force (such as RCEP, the largest trade bloc in history) or are still in the negotiation phase. Although widely regarded as the “powerhouse of manufacturing” or “the factory of the world” exports contribute only a comparatively small proportion of the Chinese economy, at just 18.5% in 2020. Of the world’s 500 largest companies, 145 are headquartered in China.
It has four of the world’s top ten most competitive financial centers and three of the world’s ten largest stock exchanges (both by market capitalization and by trade volume). China’s economy is both a contributor to rising global greenhouse gas (GHG) emissions causing climate change and severely affected by its adverse impacts, although its per capita emissions are still much lower than developed economies such as the United States.
China’s SOEs perform important functions that benefit the state. Academic Wendy Leutert writes, “They contribute to central and local governments revenues through dividends and taxes, support urban employment, keep key input prices low, channel capital towards targeted industries and technologies, support sub-national redistribution to poorer interior and western provinces, and aid the state’s response to natural disasters, financial crises and social instability.” As of 2017, China has more SOEs than any other country, and the most SOEs among large national companies.
State-owned enterprises accounted for over 60% of China’s market capitalization in 2019 and generated 40% of China’s GDP of US$15.98 trillion dollars (101.36 trillion yuan) in 2020, with domestic and foreign private businesses and investment accounting for the remaining 60%. As of the end of 2019, the total assets of all China’s SOEs, including those operating in the financial sector, reached US$58.97 trillion In 2015. Ninety-one (91) of these SOEs belong to the 2020 Fortune Global 500 companies.
China’s unequal transportation system, combined with important differences in the availability of natural and human resources and in industrial infrastructure, has produced significant variations in the regional economies of China. Economic development has generally been more rapid in coastal provinces than in the interior and there are large disparities in per capita income between regions. The three wealthiest regions are the Yangtze River Delta in East China; the Pearl River Delta in South China; and Jingjinji region in North China.
It is the rapid development of these areas that is expected to have the most significant effect on the Asian regional economy as a whole and Chinese government policy is designed to remove the obstacles to accelerated growth in these wealthier regions. By 2035, China’s four cities (Shanghai, Beijing, Guangzhou and Shenzhen) are projected to be among the global top ten largest cities by nominal GDP according to a report by Oxford Economics.
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