Just a few years ago China was projected to over take the United States as the world’s largest economy. Most analysis had predicted that by 2024 China’s GDP would be greater than that of the U.S.
China’s growth was seen as miraculous and was envied by countries all over the world. China had pulled hundreds of millions of people out of poverty and had become a global economic powerhouses.
China’s economic reforms in the late 70s and early 80s had unleashed market forces and private enterprise, leading to rapid economic growth. China became the “factory of the world” as multinational corporations set up operations there to take advantage of the low wages and huge pool of workers.
As the list of the largest companies in the world begun to feature Chinese firms, it seemed only a matter of time until China would overtake the U.S. as the world’s largest economy.
China’s influence was also growing in other areas. It became a major holder of U.S. debt, and its currency, the yuan, was starting to be seen as a viable alternative to the dollar.
But then something happened that no one saw coming. China’s economy begun to slow down, and it has been in bad shape ever since.
There are a number of reasons why China’s economy is struggling right now.
The first is that the country’s export-driven growth model is no longer working. In the past, China relied on exports to drive economic growth. But as the global economy has slowed down, demand for Chinese exports has fallen.
This has led to a slowdown in growth and an increase in unemployment. As factories have closed and workers have lost their jobs, the demand for goods and services has fallen, further exacerbating the problem.
Another reason for China’s economic woes is the country’s high levels of debt. Both the government and businesses have taken on a lot of debt in recent years, and this has become a drag on growth.
As China’s economy has slowed, the repayment of these debts has become more difficult. This has led to defaults and a rise in non-performing loans, further weakening the financial system.
The third reason for China’s economic woes is the country’s demographic problem. China is aging rapidly, and the working-age population is shrinking. This is leading to a decline in the labor force and a rise in the dependency ratio.
As the number of people in the workforce decreases, there are fewer people available to produce goods and services. This is leading to a slowdown in economic growth.
The fourth reason for China’s economic problems China’s strict Zero-COVID-19 policy. In an effort to control the spread of the coronavirus, China has implemented strict lockdown measures. This has led to a significant decline in economic activity.
The fifth reason for China’s economic troubles is the U.S.-China trade war. The Trump administration imposed tariffs on Chinese imports, and China retaliated with tariffs of its own. This trade war is hurting both countries and is one of the main factors behind the current economic slowdown as some of those tariffs are still in place under Joe Biden’s administration.
China’s Housing Bubble
China’s growth began in 1979 as china opened up to the world and rural-urban migration increased. Hundreds of millions of young Chinese moved to cities in search of work. This created a massive demand for housing, and prices soared as 64% of the population moved to the cities.
For the Chinese real estate soon became a source of financial stability as well as a way to show status.
It also became a prerequisite for starting a family as many young people put off marriage until they could afford a home.
However, this led to an unsustainable housing bubble as prices continued to rise faster than incomes.
This created a problem for the Chinese economy as many people were putting their life savings into housing, and today taking into account living expenses it would take the average Chinese worker 50 years to own an apartment.
To help their children families started collective pooling of money, taking on debt, and in some cases selling sex to help pay for housing.
The problem with the housing bubble is that it’s not just families that are buying apartments, developers were also building more luxurious homes that could be financed thanks to the easing of credit lending stands to individuals as well as developers by state-owned banks.
Company like the now infamous Evergrande to full advantage of this and expanded rapidly, becoming one of the most indebted developers in China.
This created a massive oversupply of apartments and luxury homes, which has led to falling prices and a rise in bad loans.
The result of this is that there are now an estimated 65 million vacant homes in China.
The percentage of empty apartments in China is about 10% and as high as 40% in so small cities.
70% Of Wealth In China Is Stored In Real Estate
Purchasing more than one home as an investment is common in China as many people view real estate as a more stable investment than stocks or other financial assets.
Presale Options For Buyers
Chinese developers often offer “pre-sale” options to buyers, which allows them to buy a home before it’s built.
This system is often abused as developers use pre-sales to finance construction costs, and in some cases, they don’t even start building the homes until all the pre-sales have been sold.
This has led to a number of cases where buyers have waited years for their homes to be built, and in numerous cases these homes have not been built and the buyers have been left paying loans on homes that don’t exist.
China’s Infrastructure Debt
China has many huge and debt-ridden infrastructure projects one of these is the super speed rail road.
It was an attempt to pump money into the economy and create employment opportunities.
While this project did create employment and even saved China from economic recession, once it started operations the demand was not there, and it quickly became unprofitable.
It also left the country with an estimated $900 billion in debt which is 5% of the country’s GDP.
China’s Belt And Road Initiative
To add to the internal debt issues, China is also facing external debt problems due to the Belt and Road Initiative.
This is a project where China has been lending money to other countries for infrastructure projects.
The problem is that many of these countries are not able to repay the loans, and China is now facing the possibility of default by many of these countries.
China had had to renegotiate $52 billion in debt with most of these countries unable to pay.
The problem with the Belt and Road Initiative is that it was not properly vetted, and now China is on the hook for billions of dollars in bad debt.
China’s Zero COVID Policy
Finally, one of the reasons why China’s economy is in bad shape right now is because of the country’s zero COVID policy.
While the rest of the world is recovering from the pandemic, China has managed to keep its infection and death rates relatively low.
However, the cost of this has been a very strict testing and quarantine system where daily testing is still required for going to school, work, shopping or eating out.
This has had huge effects on the economy.
Youth Revolt
China’s youth is the most educated and affluent generation in the country’s history, and they’re not afraid to speak up or challenge authority.
With an increase in unemployment and a decrease in economic opportunity, China’s youth is starting to revolt.
There have been a number of online movements one of the “LIE FLAT”.
It was started by a group of unemployed university graduates who are frustrated with the lack of good jobs.
The name of the movement refers to the fact that they are all living at home with their parents and are unable to afford to move out or start their own families because of lack of opportunities.
There is now a new movement “LET IT ROT” which is encouraging people to do the bare minimum for survival.
The aim of this movement is to protest the fact that Chinese youth are overworked and underpaid.
These movements are a sign that the Chinese youth are fed up with the current state of the economy, and they’re not afraid to voice their opinions or challenge authority.
This is a huge change from the previous generation who were the beneficiaries of China’s economic miracle and were much more content to stay silent and keep their heads down.
The fact that the youth are revolting shows that China’s economy is in bad shape right now, and it is only going to get worse unless something changes.
