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As the saying goes, trees don’t grow into the sky. About China We almost believed that this rule did not apply there, at least not until it approached the level of the most developed countries. However, the situation is not that simple: China started from an extraordinary depth in 1978 when it announced economic openingFurthermore, until recently it was the most populous country in the world. And a country with a population of over a billion people cannot really be brought from near zero to the level of the richest, at least with some kind of economic structure.
The country now faces the risk of falling into the middle development trap, meaning growth will stall before it can catch up with developed countries. Of course, factors that occur in other countries with overheated economies also play a role: for example, the real estate sector grew too large and could not be slowed down in time.
In the case of China, there are also unique factors: In many cases, financing was provided by non-traditional bankswho check whether there are buyers for the properties being built, but rather so-called shadow banks.
These are not really regulated companies, more like investment funds, but they are not as strictly regulated as in Western countries, so investors’ money could be used for property development without there being a buyer for it.
It has now become clear that the country has begun building far more housing and other real estate than its 1.4 billion population needs and has the purchasing power, and that this is threatening the entire financial system.
Political implications
The government’s zero Covid policy during the epidemic had a repellent effect that failed to completely stop the epidemic, instead causing disproportionate economic damage and scaring off foreign investors, including the companies that ran the factories: many of them withdrew back from the country. In addition, the state began to unjustifiably harass large, successful Internet companies and then other companies, with rules that were introduced from one day to the next, often unjustified, but at the same time causing great harm. This, in turn, only harms the entrepreneurial spirit: in the third quarter, foreign direct investment became negative, that is, there was an effective withdrawal.
This has led to a sharp decline in some sectors, unemployment among Chinese youth has increased, although this is already the case among younger age groups They are less populated due to the previously introduced one-child family modelIn addition, the birth rate also fell to an extremely low value of 1.1.
This will lead to an aging and declining population in China, making long-term economic growth impossible. However, the following also applies: If the population decreases rapidly with stagnating GDP, then the GDP per capita will fall and thus the standard of living will increase significantly; China will probably never be the largest economy in the world.
Structural problems in the Chinese economy
At the same time, the economy is still growing, not a little: this year the rate could be 5 percent, next year 4.5 percent. While several sectors are declining, electric car production and exports are growing very quickly, so there is an industry that is attracting the Chinese economy. However According to the IMF, growth could be 3.5 percent in 2028and later at an even slower pace, that is, it will fall to the level typical of developed countries before China can reach the level of developed countries, or like Hungary.
CNN quotes a China analyst as saying The Asian country is not dealing with a cyclical economic problem, i.e. a temporary downturn, but with structural problems. Productivity is not sufficient and domestic purchasing power has fallen, but at the same time it is not worth counteracting this with a windfall and an abundance of credit, as it is more of a pain relief than a cure.
The question is whether economic management is aware of this and whether it is prepared to promote structural changes, which has already proven successful, for example, in supporting the electric car sector.
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