Great Chna Slowdown?
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China finally lifted Covid restrictions last year, policymakers and companies hoped that it would help lift the global economy out of its post-pandemic doldrums. But data released on Monday shows that the hoped-for recovery in the world’s second-biggest economy still hasn’t materialized, raising wider questions about global growth, the implications for international business and China’s dealings with the outside world.
Gross domestic product grew just 0.8 percent in the second quarter compared to the first three months of the year, according to official statistics, as falling exports, weak consumer spending and a stalled property sector hammered the economy.
The disappointing data hit commodities and stocks this morning, with Brent crude tumbling to a one-week low and shares in the China-dependent luxury groups LVMH and Richemont opening sharply lower. Shortly after, Morgan Stanley and Citigroup cut their full-year growth forecasts for China. Treasury Secretary Janet Yellen told Bloomberg that China’s slowdown could have a “negative” impact for other economies, including the United States.
Gross domestic product grew just 0.8 percent in the second quarter compared to the first three months of the year, according to official statistics, as falling exports, weak consumer spending and a stalled property sector hammered the economy.
The disappointing data hit commodities and stocks this morning, with Brent crude tumbling to a one-week low and shares in the China-dependent luxury groups LVMH and Richemont opening sharply lower. Shortly after, Morgan Stanley and Citigroup cut their full-year growth forecasts for China. Treasury Secretary Janet Yellen told Bloomberg that China’s slowdown could have a “negative” impact for other economies, including the United States.
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After two decades of stunning economic growth, evidence of a slowdown in China is naturally a cause for concern.
The evidence, unfortunately, is not hard to find. China’s estimated annual rate of GDP growth is slowing and looks to be stabilising at about 4%, only a couple of percentage points higher than that of rich countries in the OECD. At this rate it will take many decades before income per person in China catches up with that of other leading economies.
China GDP growth falls short of expectations as sinking property prices hit economy
High youth unemployment is another symptom of a slowdown, where businesses retain their existing workers but stop hiring new ones. For young workers it represents a violation of the implicit social contract offered by the CCP, where acquiescence in authoritarian rule is rewarded with steadily improving living standards. This represents a threat to the stability of the government, which is doing its best to keep the growth engine running a bit longer, even at the risk of a worse crash later on.
The evidence, unfortunately, is not hard to find. China’s estimated annual rate of GDP growth is slowing and looks to be stabilising at about 4%, only a couple of percentage points higher than that of rich countries in the OECD. At this rate it will take many decades before income per person in China catches up with that of other leading economies.
China GDP growth falls short of expectations as sinking property prices hit economy
High youth unemployment is another symptom of a slowdown, where businesses retain their existing workers but stop hiring new ones. For young workers it represents a violation of the implicit social contract offered by the CCP, where acquiescence in authoritarian rule is rewarded with steadily improving living standards. This represents a threat to the stability of the government, which is doing its best to keep the growth engine running a bit longer, even at the risk of a worse crash later on.
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- Joined
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- 113
https://www.bloomberg.com/opinion/a...xing-a-balance-sheet-recession-is-challenging
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BREAKING
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OpinionShuli Ren
China Can’t Work Out How to Fix Its ‘Balance-Sheet Recession’
Policymakers face an unfamiliar economic conundrum. Who gets what is a hot-button political issue.
Gift this article
Tough decisions.
Tough decisions.Photographer: Raul Ariano/Bloomberg
By Shuli Ren
June 12, 2023 at 6:00 PM EDT
Updated on June 12, 2023 at 9:50 PM EDT
China is at a crossroad. Recent data are so dismal that narratives in the mainland have shifted quickly from whether to stimulate the economy to how.
The country is entering a strange economic aberration its policymakers are not used to. It is exhibiting what some fear is a “balance-sheet recession,” in that rather than maximizing profit, people are busy minimizing debt.
The cost of borrowing has come down, but consumers are not buying big-ticket items, using their savings to speed up payments on existing mortgages instead. Companies are not investing for the future, either
Bloomberg
Subscribe
We've updated the dispute procedures in our Terms of Service (“Terms”). By continuing to use the site, you accept and agree to these updated Terms.
BREAKING
Myanmar Junta Pardons Aung San Suu Kyi in State Amnesty
Read More
OpinionShuli Ren
China Can’t Work Out How to Fix Its ‘Balance-Sheet Recession’
Policymakers face an unfamiliar economic conundrum. Who gets what is a hot-button political issue.
Gift this article
Tough decisions.
Tough decisions.Photographer: Raul Ariano/Bloomberg
By Shuli Ren
June 12, 2023 at 6:00 PM EDT
Updated on June 12, 2023 at 9:50 PM EDT
China is at a crossroad. Recent data are so dismal that narratives in the mainland have shifted quickly from whether to stimulate the economy to how.
The country is entering a strange economic aberration its policymakers are not used to. It is exhibiting what some fear is a “balance-sheet recession,” in that rather than maximizing profit, people are busy minimizing debt.
The cost of borrowing has come down, but consumers are not buying big-ticket items, using their savings to speed up payments on existing mortgages instead. Companies are not investing for the future, either
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