LONDON: As the Beijing Winter Olympics get underway, all eyes are on China. There has been lots of coverage about China’s chilly relationship in the west and its persecution of the Uighur and other minorities, but there is also much to be said about the Chinese economy.
China’s great rise over the past several decades has been the great economic success of our times, lifting hundreds of millions of people out of poverty and giving the global economy wheels in the years after the financial crisis of 2007 to 2009.
Over the past decade, however, the miracle became a bit more ordinary as growth gradually slowed. China found it difficult to keep increasing exports at the same pace year after year, particularly in the face of weaker international demand for its products – not least because of the trade war with the US.
Other issues have included an ageing population and the fact that growth had become increasingly dependent on debt, which wasn’t sustainable.
CHINA TO FACE CONTINUED ECONOMIC HEADWINDS
China did seem to have weathered the pandemic better than many major economies, having contained the virus so aggressively. Yet the picture has since deteriorated as renewed domestic COVID-19 outbreaks, including the new Omicron variant, have caused fresh economic disruption.
Omicron’s effect on other major economies is not good news for Chinese exports either. Neither is the resurgence of inflation in many countries, which has prompted the US Federal Reserve and other central banks to threaten higher interest rates and an end to creating money via quantitative easing.
This is likely to further dampen demand for Chinese goods.
China’s debt has also become an even bigger issue. Leading property developer Evergrande’s financial difficulties in 2021 made headlines, but excessive debt is rife throughout the property sector and beyond. If the bubble bursts, it could lead to a prolonged downturn that significantly damages the wider economy.