The Chinese economy was expected to recover quickly in 2023 and resume its role as the undisputed engine of global growth. Instead, it stalled to the point where it's being called a "drag" on world output by the International Monetary Fund (IMF), among others.
Despite its many problems — a property crisis, weak spending and high youth unemployment — most economists think the world's second largest economy will hit its official growth target of around 5% this year.
But that is still below the 6%-plus annual growth averaged in the decade before the Covid pandemic, and 2024 is increasingly looking ominous, they said. The country may be staring at decades of stagnation thereafter.
"The 2024 challenge for the Chinese economy will not be GDP growth — that will likely be above 4.5%," said Derek Scissors, senior fellow at the American Enterprise Institute, a center-right think tank. "The challenge will be that the only direction from there is down."
Without major market reforms, the country could be stuck in what economists call "the Middle Income Trap," he warned, referring to the notion that emerging economies grow quickly out of poverty only to get trapped before they reach high-income status.
For decades since China reopened to the world in 1978, it was one of the fastest growing major economies. Between 1991 and 2011, it grew by 10.5% annually. The expansion has slowed during the past 11 years of Chinese leader Xi Jinping's rule, but was still averaging 6.7% in the decade through 2021.
"The second half of the 2020s will … see slowing growth," Scissors said, citing a correction in the troubled real estate sector coupled with demographic decline.
The IMF has also become gloomier about the longer-term outlook. In November, it said it expected China's growth rate to reach 5.4% in 2023, and gradually decline to 3.5% in 2028 amid headwinds ranging from weak productivity to an aging population.
The Chinese economy, which is plagued by a litany of challenges, didn't get to this position overnight.
Scissors said the previous administration of former leader Hu Jintao had flooded the economy with liquidity in 2009 during the depths of the global financial crisis to boost growth. Xi's government was reluctant to rein in the borrowing after coming to power in 2012, which caused structural problems to build up.
Logan Wright, director of China markets research at Rhodium Group, agreed, saying: "The slowdown in China's economy is structural, caused by the end of an unprecedented expansion in credit and investment over the past decade."
The country's financial system simply won't be able to generate the same levels of credit growth that it has in previous years, he said, therefore Beijing will have far less control over the direction of its economy than it has in the past.
What made things worse was Beijing's stubborn embrace of a zero-Covid policy of stringent lockdowns and its sweeping crackdown on private enterprise, which deeply hurt confidence and battered the most vibrant part of the economy.
The consequences of these policies can be seen in the slowdown this year — and on the horizon China has another major economic challenge: population decline.
Keep reading about the expectations for China's slowing growth.
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