Country Garden’s troubles add to China’s struggling economy.

Country Garden's troubles add to China's struggling economy.

China’s Economy Faces a Critical Test as Real Estate Crisis Looms

China’s Economy

China’s economy is on the verge of a major crisis as it grapples with a real estate downturn, deflation, a consumer confidence crisis, and a declining population. The recent news of a debt payment default by Country Garden Holdings, one of the largest real estate developers in the country, highlights the magnitude of the challenges faced by China’s economy.

The Real Estate Woes and Their Ripple Effects

China’s real estate troubles started in 2021 when the government intervened to curb the sector’s mounting debt. However, the intervention had unintended consequences. It led to the near-collapse of Evergrande, the largest real estate developer in the country at that time, as well as the bankruptcy of several other developers and a sharp decline in property prices.

The consequences of the real estate market crash have been far-reaching. The economy has entered a deflationary spiral, causing a prolonged crisis in consumer confidence and an overall slump in economic growth. The statistical office even stopped publishing monthly consumer confidence data after the index failed to show signs of improvement for over a year.

To address the crisis, the government recently expanded its economic stimulus package, offering subsidies for domestically-produced goods, tourism, and home renovation. However, these measures may be too little, too late.

The Malaise of China’s Economic and Political Landscape

The fragility of consumer confidence is just one symptom of a larger malaise that extends beyond the purely economic realm. According to James Kynge, global China editor and an experienced observer of China’s development since the late 1980s, the concept of “comprehensive national security” has permeated every aspect of Chinese life under the leadership of Xi Jinping. Economic, cultural, social, technological, and ecological factors are now considered matters of national security crucial to the survival of the ruling party-state.

This deep-seated malaise intertwines psychological and political elements, exacerbating the challenges faced by China’s economy. The pursuit of comprehensive national security has added complexity to the already troubled economic landscape.

The Demographic Impact on China’s Economy

Apart from the immediate challenges, China also faces a more profound issue—the “get rich before they get old” mindset is running out of time. The country’s aging population, coupled with declining birth rates, has led to a shrinking population. According to the country’s statistics bureau, China’s population declined by 850,000 people last year. This demographic decline will increasingly weigh down the economy, resulting in consequences for China’s economy, both domestically and abroad.

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Key Takeaways and Future Implications

China’s economy is at a critical juncture, facing multiple challenges that threaten its stability and growth. The real estate crisis, deflation, consumer confidence crisis, and declining population all contribute to the complexity of the situation. The pursuit of comprehensive national security exacerbates these challenges further.

As China navigates these obstacles, its response will have both domestic and international implications. The outcome will impact the global economy and everyone involved in China’s economic activities, making it a topic of great interest and concern. The future of China’s economy rests on the ability to find solutions to these multifaceted challenges, ensuring sustainable growth and prosperity for the nation and its people.

Peter [email protected]@petervanham