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‘Re-Globalization Minus China’ and the Art of Destroying Your Economic Growth

a crumbling future of China’s economy

In 2015, China made some major changes in its domestic as well as global economic policies. Most notably, the Chinese Communist Party, under Xi Jinping, began to exert increasing state dominance over businesses and various enterprises. This brought an end to the entrepreneurial-friendly years of the preceding two decades and ushered in greater oversight. At the same time, increasing tensions with the U.S. trade resulted in shifting global economic impacts as well. Dealing with China became increasingly more challenging, especially for Western corporations. And domestic pressures undermine local economy effects as well. All of this has many wondering what the future of China’s economy holds moving forward.

a grim future of China’s economy
The future of China’s economy is on shaky ground thanks to their economic policies and business practices.

(China made a bunch of entrepreneurs feels less than welcome–read why in this Bold story.)

In the midst of these shifts, China, as well as the rest of the world, had to also deal with a global pandemic. China’s response was one that was highly restrictive, instituting a zero-COVID policy that further handcuffed economic viability. In addition to being late to lifting these policies, China concurrently further undermined domestic business confidence. Recent raids on Western-friendly businesses and coercive controls over non-compliant businesses are examples of such actions. Given these decisions, it’s no wonder many companies beyond its borders envy dealing with China today. Many are in fact looking elsewhere through near-shoring or friend-shoring efforts. It’s precisely these trends that reflect a re-globalization minus China that’s leading to a less-than-favorable future of China’s economy ahead.

Global Economic Pressures on China

Certainly, the greatest global economic impact affecting the future of China’s economy were events related to COVID. The Chinese government made the decision to impose draconian lock-downs and surveillance measures in their response. But the intensity and duration of these policies were devastating to domestic and international trade. Industrial output fell dramatically as did consumer spending thereafter. In addition, policies completely shut down some segments of the economy. All of this resulted in a sharp decline in exports for China, which accounts for 20% of the country’s GDP. Estimates suggest that exports dropped by about 10% year-over-year this past year. This has made it difficult in dealing with China because of the supply chain issues that resulted.

This isn’t the only global economic impact affecting the future of China’s economy, however. Global recessionary pressures have meant that the demand for Chinese goods abroad have also dropped. As consumers have tightened their belts, the need for Chinese products have similarly decreased. Likewise, ongoing U.S. trade tensions have encouraged re-globalizing strategies for many Western countries, moving away from Chinese trade dependence. Some countries view dealing with China as being unacceptable given China’s failure to criticize Russia for its attack on Ukraine. In essence, China has done little to cultivate constructive trade relations with countries upon whom it has been highly reliant. This doesn’t bode well for the future of China’s economy if policy strategies don’t change.

a pic of a city street in China
What happens when you stifle the free market and make it tough for foreign businesses to get a fair shake in your country? China is what happens.

Domestic Pressures within China

International re-globalization strategies minus China aren’t the only factors affecting the future of China’s economy. The country is also experiencing serious domestic economic issues as well. In recent years, China has been antagonistic to Western-based corporations and technologies. On the one hand, it has restricted access to many such technologies within its country. These policies have been implemented as a means to exert Communist Party control over citizens. But it has also created unfair business climates for Western firms in the country, making it hard for them in dealing with China. This too has many multinational firms looking elsewhere to diversify its options.  Vietnam, Indonesia, India, and Sri Lanka are a few countries benefiting from these shifting strategies.

(Vietnam has stepped up as a global source of manufacturing–read up on it in this Bold story.)

Other major domestic issues affecting the future of China’s economy relates to demographics and population shifts. Current estimates suggest China has 1.4 billion residents. In past decades, about 70% of China’s population were enrolled in the domestic workforce. But this has decreased significantly in recent years. Today, only about 62% of China’s population is of working age. And combined with a family birth restriction of one child per family prior to 2016, the country’s population issues won’t improve soon. This also leaves a larger population percentage of Chinese citizens requiring older-age care. Thus, dealing with China demographic shifts will be ongoing demands for Chinese economists in coming decades. Even if global demand grows in the future, China’s capacity to meet this demand could be in question.

Evidence for Future Economic Decline

dealing with China as exemplified by a barcode
Dealing with China has always been a tenuous prospect for US businesses. Now China is paying the price for that.

At the current time, China continues to be the second largest economy in the world. It has a massive military, large population and domestic market, and a notable share of the world’s export trade. It also has about $870 billion in U.S. debt. But these figures are only a snapshot in time that could progressively wane if good choices aren’t made. At present, China is struggling with both international and domestic issues that are undermining the future of China’s economy. Multinationals are moving to other nations for manufacturing and production. Taiwanese firms are relocating to Mexico to better diversity themselves beyond China. And friendshoring for the U.S. and Europe is a real thing. Each of these are developments that could significantly cut into China’s export markets. And ultimately, combined with domestic needs, could send their economy into a tailspin.

Of course, this is all speculation based on recent economic trends. However, there is evidence that the future of China’s economy is on the decline. Its growth rate in 2021 was 8.1%, but this fell to 3% in 2022. Many expect China’s growth in 2023 to be around 4%, but this will only be realized in China maintains existing trade relations. If dealing with China becomes too cumbersome for nations and firms alike, this prediction could be overzealous. Whether China likes it or not, its prosperity is intimately linked to the global economy. It may choose to impose restrictions and trade sanctions, but it does so at its own peril. China’s recent rise as an economic power resulted from relaxed oversight and entrepreneurial supports. If China chooses to take these away, it may lose all it has previously gained.

 

Too much government oversight can be a bad thing–read about how they wanted to take our whipped cream in this Bold story.

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