China’s Economic Challenges and Inadequate Responses
China has been facing significant economic challenges, and Beijing’s response to setbacks has been inadequate, leading to more bad news and insufficient policies. The ongoing pattern of economic weakness and ineffective remedies has left Chinese wage earners and businesses struggling to cope with the mess.
In recent months, Chinese authorities have held a series of grand meetings to announce new policies aimed at regaining economic momentum. However, despite these efforts, the country continues to suffer from a loss of dynamism and growth prospects. While Beijing has confirmed a reduced 5 percent real growth target for 2024, various statistical and anecdotal measures indicate that the economy is underperforming.
According to the National Bureau of Statistics, China’s real GDP for the spring quarter was only 4.7 percent above year-ago levels. Additionally, unemployment has ticked up to 5.2 percent in July, signaling a lack of hiring by Chinese businesses.
One of the major sectors experiencing weakness is housing. Home sales by value fell nearly 26 percent in July compared to the previous year, and property prices continue to decline. Despite Beijing’s efforts to buy unoccupied apartments, the drop in property values has led to a decline in consumption levels. For many Chinese, the value of their homes represents a significant portion of their household wealth. As a result, declining real estate values have made people feel poorer, leading to reduced spending and a drag on the overall economy.
Beijing has attempted to boost consumer spending by implementing a program to buy older household appliances and cars, but it has seen little response. Retail sales in July were only 2.7 percent higher than the previous year, falling short of the target for the overall economy.
Capital spending by businesses has also lagged, with private businesses’ capital spending for expansion and modernization increasing by a mere 1.9 percent in 2023. The sluggish and uncertain behavior of the overall economy has contributed to this reluctance. However, there is an additional factor at play. CCP leader Xi Jinping’s previous criticism of business owners for prioritizing profits over the CCP agenda has created a sense of fear among private businesses. They are hesitant to put more at risk, especially considering the authorities’ plans to have a greater role in private businesses’ spending decisions.
Exports have also been a source of concern. While growth in the rest of Asia has boosted overall figures, sales to the West and Japan are far from encouraging. Governments in Washington, Brussels, and Tokyo have shown varying degrees of hostility toward China trade, imposing tariffs and other restrictions. Businesses in the West and Japan are actively diversifying their sourcing away from China, leading to a decline in shipments of goods from China to these regions.
In an attempt to make up for deficiencies in other sectors, Beijing launched an investment program in high technology, particularly in electric vehicles (EVs) batteries, computer chips, and green energy. However, this effort has resulted in excess capacity in these areas and a distortion of the Chinese economy. The state-backed programs have encouraged production in areas that neither China nor the rest of the world wants from China.
Overall, the current economic situation in China remains bleak, with a pattern of inadequate responses and continued challenges. The future seems likely to replicate this pattern unless more effective measures are taken.
