China's Economic Slowdown and Its Root Causes: Analysed

For years, China’s economy has been rapidly expanding,
becoming the world’s second-largest economy. Their economic growth was nothing
short of astonishing – double-digit GDP growth year after year. However, the
recent numbers tell a different story. The Chinese economy is facing
significant challenges due to a combination of factors.

Read also this:  India is APAC’s fastest-growing Economy, according to S&P

Decline in Exports

One of the major struggles is a decline in exports.
China has been heavily reliant on exports for economic growth, but as global
demand has weakened, their export figures have fallen. In May, Chinese exports
were down 7.5% year-over-year. This decline in
exports is hurting Chinese businesses, which are struggling to maintain their
profit margins. The trade wars with the United States and other countries have
contributed to this decline, further intensifying the situation.

Demand for Chinese goods has declined due to rising global prices, the
danger of recession elsewhere, and geopolitical tensions with the United
States.

Increase in Production costs

Additionally, China’s manufacturing sector has been
impacted by rising costs. Over the years, wages have been increasing in China,
reducing their competitiveness in the global market. Globalization and China’s
growing foreign investment have contributed to salary increases. Global firms
offer modern technology and management skills to Chinese facilities when they
outsource production. 

It creates more productive, higher-paying jobs. China’s
wage growth is also driven by urbanisation. The urban labour supply has
tightened as more people move from rural areas to cities for better
possibilities. Due to this demographic transition, wages have risen.

As a result, many manufacturers have started to shift
their production to other countries with lower labor costs, such as Vietnam and
Bangladesh.

Property Crisis in China

In China, this term refers to the situation when there
is an oversupply of housing combined with a decline in demand. This imbalance
can lead to a domino effect, causing property prices to plummet and impacting
the overall economy.

One major factor is the rapid urbanization that China
has experienced in recent years. The government, aiming to stimulate economic
growth and alleviate poverty, encouraged the construction of huge residential
and commercial buildings throughout the country. 

However, this construction
frenzy led to an excess supply of housing, far surpassing the actual demand. As
a result, these properties remain unoccupied or unsold; creating what is
commonly referred to as ghost cities.

Imagine rows and rows of empty buildings, waiting for
occupants that may never arrive. Another contributing factor to the real estate
crisis in China is the strict regulations on home purchasing. The government
implemented these measures to control speculative investments and prevent
property bubbles. However, these restrictions, such as high down payments and
limiting the number of properties one can own, have resulted in a decrease in
demand, further exacerbating the crisis.

In addition, the impact of an aging population cannot
be ignored. With the rising number of elderly citizens and fewer young people
available to purchase homes, the demand for housing has significantly
decreased. This demographic shift, combined with the oversupply, has left the
Chinese real estate market facing a monumental challenge.

A declining property prices can have a ripple effect on
the economy. Many individuals, who may have invested their life savings into
real estate, are now facing the risk of financial loss. This creates a hesitant
consumer market and can potentially slow down economic growth.

China’s Ageing Population

In 2022, China’s population dropped for the first time
in nearly 60 years. The percentage of people over 60 in China increased from
14.3 percent to 2.8 percent last year, and the country as a whole is rapidly
ageing as a result.

Changing demographics played a crucial role. The
one-child policy, which was implemented in China from 1979 to 2015, means that
the working-age population has shrunk, while the number of elderly citizens has
significantly increased.

This point a problem in the national pension system in
the near future. Given the declining population and social security
contributions, the Chinese Academy of Social Sciences, a Beijing-based
government think tank, issued a warning in 2019 that the state pension pool
could dry up by 2035.

And With fewer working individuals to support the
growing elderly population, the overall economic growth rate naturally slows
down.

Environmental Concerns

In recent years,
China has prioritized environmental sustainability, leading to stricter
regulations and a shift towards cleaner energy sources. While this has resulted
in temporary closures of certain industries and factories, these measures are essential
for combating pollution and ensuring long-term ecological stability.

Structural Challenges

As China evolves, there are certain economic
adjustments that become necessary. For instance, the country needs to
transition from an export-oriented to a consumption-driven economy. This shift
involves addressing issues such as income inequality and reducing the reliance
on exports. It takes time to navigate these structural changes and adapt the
economic model accordingly.

 Debt Levels

China’s high
levels of debt have also contributed to the slowing down of its economy. One major factor driving China’s high debt levels is
its rapid economic growth over the past few decades. As China transformed from
an agrarian economy to a global manufacturing powerhouse, it required massive
investments in infrastructure, factories, and urban development. To fund these
ambitious projects, the Chinese government had to borrow money.

In order to fuel its economic growth, China had to
borrow extensively from both domestic and foreign lenders. This strategy
enabled the government to provide loans to state-owned enterprises and
incentivize economic activity.

Another significant reason behind China’s high debt
levels is its lending practices. Chinese banks have been lending heavily to
support businesses and maintain economic stability. While this has boosted
economic activity, it has also led to an increase in debt levels, especially in
the corporate sector.

In order to
maintain high growth rates, the government and corporations have relied on
borrowing. Mounting debt raises concerns about financial stability, reducing
investment opportunities, and constraining consumption.

So, Structural challenges, trade tensions, demographic
issues, debt levels, and environmental concerns have collectively influenced
the slowing growth. However, it’s important to recognize that economies are
dynamic by nature; they undergo cycles of growth and contraction.

OTT India updates you with the latest news, Country’s no.1 digital news platform OTT India, Keeps you updated with national, and international news from all around the world. For more such updates, download the OTT India app on your Android and IOS device.