The economy of Chinathe second largest in the world, faces a structural crisis derived from years of overindebtedness, overconstruction y overcapacity industrialwhich have generated problems both domestically and in global trade. The situation could delay for decades its goal of surpassing USA as the largest economy in the world, according to an analysis of The Wall Street Journal.
The largest real estate bubble in history, which burst in 2021, has caused an estimated loss of $18 trillion in Chinese household wealth, according to calculations by Barclays. This figure far exceeds the losses Americans experienced during the 2008-2009 financial crisis. Added to this is the impact of the Chinese regime’s restrictive approach during the COVID-19 pandemic. Covid-19which has led to a notable drop in domestic consumption.
The economic growth of Chinawhich for years led analysts to predict that it would exceed the gross domestic product (GDP) of USA around 2030, it has lost momentum. Currently, few project that this goal can be achieved before mid-century, if ever, while USA leads global growth.
The real estate sector, which for decades was an engine of growth in Chinais going through one of its worst crises. According to recent estimates, there are up to 80 million empty housing units in the country, the equivalent of half of the entire housing stock in USA.
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Since Beijing introduced restrictions on developer borrowing in 2020, sales and construction of new properties have plummeted. Although the government has tried to stimulate the market with cheap credit and easing purchasing restrictions, the results have been limited.
On the other hand, the country’s total debt level – which includes government, corporate and household debt – approaches 300% of its annual GDP.
A particular problem is the “hidden” debt of local governments through opaque financial vehicles, exacerbating the burden of debt service. According to experts, the weight of these debts in China could be even more severe than in States Joined before the 2008 crisis or in Europa during the sovereign debt crisis a decade ago.
In his attempt to consolidate himself as a technological giant, the president Xi Jinping has driven massive investments in the industrial sector. This has led to an increase in production capacity, which far exceeds domestic demand, which has led to two years of falls in prices for Chinese producers.
The oversupply forces manufacturers to look for markets abroad, intensifying trade tensions with the West, led by States Joinedand with emerging markets such as Brazil e India.
Added to these structural problems is a demographic challenge. The working age population of China is decreasing, reversing the so-called “dividing demographic” that had sustained its growth for decades. This change could make economic recovery even more difficult and limit its long-term competitiveness.
Despite the challenges, China maintains significant competitive advantages, such as its dominance in global manufacturing and emerging sectors such as electric vehicles and renewable energy. In addition, its authorities have demonstrated skill in managing previous crises and are preparing new stimuli to reactivate the economy.
However, the excesses accumulated in recent decades have placed Beijing in a precarious position, just at a time when trade tensions and global economic challenges increase. The evolution of these dynamics will be key to the future of Chinese growth and its impact on the global economy.
