From an economic perspective, China was believed to be a dominant global player a decade ago. Indeed, China had excelled in this regard, playing a critical role in global supply chains and in manufacturing. But the COVID pandemic hit China hard, with the country making it worse by its zero tolerance policies. Many believed that once these measures were removed, China would bounce back and again be an economic force, but that hasn’t happened. In fact, China has continued to struggle as its real estate market has taken a tremendous dive. And along with China economic slowdown in this area, numerous other sectors have been affected. All of this is making China’s economic forecast in the near term look quite grim.
(China’s economic outlook was shaky last year–read Bold’s prediction from then in this story.)
Understanding that China has been a key part of global supply chains, there is cause to be concerned. This is particularly true as it relates to batteries, electric vehicles, and household goods. China’s economic slowdown could have impacts well beyond the country’s borders or even immediate regions as a result. As part of the world economy, China’s economic forecast could also affect trade opportunities, financial markets, and availability of some goods. However, as a result of many nations distancing themselves from China as of late, the impact may not be as great as one assumes. The more immediate worries may involve China’s domestic state of affairs rather than a broader outcome. Nonetheless, the global economy remains interconnected, and that makes China’s economic slowdown worth exploring.
China’s Economic Woes and Worries
A recent survey of Chinese citizens compared whether or not they felt wealthier than they did five years prior. In 2014, the responses found that 77% of those polled believed they were wealthier. But this past year, this figure had fallen to 39%. The cause for these sentiments stem from China’s economic slowdown affected by its real estate crisis. The Chinese government had supported social programs, municipalities, and its banks to real estate values. So, when real estate surplus exceed demand and prices dropped, everything began to crumble. Many developer bankruptcies have since occurred. Likewise, real estate investments have lost handsomely while housing vacancies have climbed. All of this is why China’s economic forecast for the next several years appears poor.
The ripple effects of China’s economic slowdown have also been significant. This is particularly true when it comes to recent college graduates and the country’s youth. Though China is limited access to public figures, estimates suggest 17% of young adults are unemployed. At the same time, Chinese consumers are tightening their belts and saving more than spending. Movie box office sales have dropped by half, showing the loss in disposable income. Many employers have scaled back staff as well as wages to new hires. And of course, many businesses have had to close their doors as consumption declines. Given these trends and a real estate market that continues to fall in value, China’s economic forecast isn’t favorable. And some expect the situation to persist for quite some time.
China’s Financial Market Trends
Given China’s economic slowdown, it might be assumed that the government would take measures to resolve the situation. However, China is not in a great financial position to do a great deal. China currently has a national debt in excess of $7 trillion, which makes borrowing problematic. It has therefore relied on manufacturing of household items, batteries and EVs to support its sluggish economy. But as the supply of these items grow globally, demand will fall along with prices. This will notably undercut profits, leading to additional problems related unemployment, wage, and outputs. At the same time, many countries abroad are relying less on Chinese goods, which will further reduce export demand. Things are therefore likely to get worse before they get better.
China’s economic forecast is also having profound effects on domestic and foreign markets. For the first time in a long while, Chinese equities in foreign markets are selling more than they are being purchased. Likewise, both Chinese bonds and gold are being purchased over stocks. This is driving up the price of these equities while decreasing yields. It is also undermining public Chinese companies, of which 180 have recently been removed from key financial indices. At the same time, China’s economic slowdown is forcing some companies to cut back on foreign direct investments in China. IBM has decided to close two of its R&D centers in the country. And Sephora is cutting a high number of jobs in its Chinese operations. Financial indicators therefore support China’s economic forecast as being worrisome.
Global Impacts from China’s Economic Slowdown
Based on the information provided, it’s evident that China’s economic forecast domestically is far from ideal. But what does this mean for the global economy? In terms of major impacts, those involving supply chains and markets are likely to be the most affected. Understanding that many manufactured goods come from China, business closures and reduced outputs could occur. This would likely further constrain existing supply chain problems to some extent, forcing countries to seek out other suppliers. At the same time, growth and trade opportunities that have existed in China will likewise decline further. Based on China’s population, replacing these trade markets could be tough. These will undoubtedly be key areas where China’s economic slowdown will be felt.
At the same time, however, the impact of China’s economic slowdown will not be as significant as it could be. From a financial markets’ perspective, Chinese stocks would not likely trigger a recession on a global scale. China’s economic forecast has been poor for some time, and the market has already adjusted to a degree. As far as U.S. banks, their exposure is also not significant enough to be impacted by China’s economic slowdown. Overall, their holdings in Chinese stocks and equities are around $20 billion out of a total of $23 trillion. Thus, any decline in Chinese stocks wouldn’t create a catastrophe. With this in mind, some fallout might be experienced based on China’s economic forecast. But in reality, the impact globally wouldn’t be as nearly as worrisome if economic distancing hadn’t already taken place.
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