China economic rebound seems to be hitting a snag, even though zero-COVID policies worked well at first earlier this year. Here’s a better look at the current state of the economy and the historical examples that are being used to make comparisons:
China slowing growth and the World Bank’s new forecast
China’s economy only grew by 0.8% in the second quarter, which was slower than several quarters during the COVID-caused lockdown. China will grow by 4.4% in 2024, down from 4.8% in 2023, according to the World Bank. This is the slowest growth rate since the 1960s.
China Problems with Structure and Cycles
China is having trouble with both long-term and short-term issues. There has been a slowdown because of weak demand, production, and investment, as well as tight bank sheets. An ageing population, decline, and worries about the real estate market are all structural problems.
Japan’s Lost Decades: Do the Comparisons Make Sense?
Some people say that this is like Japan’s lost decades after its real estate and asset boom burst in the 1990s, but this could be a false comparison. China and Japan are facing different societal problems and are in different situations. China still has a long way to go before it can catch up, so there is a lot of room for growth.
Important Differences in Stages of Development
China is at a very different stage of growth than Japan was when it was having economic problems. In comparison to the US, China’s per capita wages have grown a lot in the last 40 years, showing that they have a lot of room to catch up. However, Japan is further along in the process.
The room for policy and the growth potential
China has policy room to deal with the economic slowdown, even though there are problems. Since there wasn’t a lot of help during the COVID-19 years, the government could provide emergency financial aid. People think it’s a good thing that the focus is on supply-side changes that will make the economy more productive.
Less strict rules from regulators and signs of economic stability
There are signs that the Chinese government is loosening the rules that had been making businesses less confident. An economic crisis doesn’t seem possible, even though there are still short-term risks. Concerns have been made in the real estate market, but things might not be as bad as they look.
There are still structural questions and unknowns about the future
Even though there are signs that things are getting better, there are still underlying problems with the Chinese economy. It is still very important to think about how China’s current government policy fits with the country’s goal of becoming a middle-income country and how higher national security concerns might affect economic cooperation between the US and China.
China Getting through Uncertainty
Focusing on supply-side reforms along with available fiscal and monetary choices gives China a glimmer of hope as it deals with uncertainty. The result of talks in the strategic competition between the US and China and the wider geopolitical situation will have a huge impact on China’s economic path.
To sum up, there are problems, but it’s too early to say that China is going to have an economic slump like Japan did. China’s development is changing quickly, and the country’s policies are open to change. This makes it possible for the economy to recover and grow steadily.
