12 September 2023
1 mins clock icon

China: Assessing the Economic Challenges

Slower Chinese growth may be here to stay in the near-term, with structural challenges likely to weigh on the economy going forward.

By Jeanne Walters

  • Expectations had been high for a material surge in China’s economy as the country abandoned its restrictive zero-Covid policies at the beginning of 2023, but it now seems likely that Chinese growth will only just match the (relatively low by historical standards) 5% government growth target announced at the beginning of the year.
  • Previous economic downturns in China have been met with sizeable stimulus packages. In contrast, this time around there appears to be little appetite from the authorities to deliver the same kind or scale of stimulus.
  • Several China experts have suggested that the slowdown in growth is in fact not new, and that the Covid lockdowns merely obscured the wider structural issues facing China. Notably, the political economist Zongyuan Zoe Liu, argues that there are four structural factors that are likely to act as a persistent drag on Chinese economic growth going forward. These can broadly be characterized as weak household demand, high levels of local government debt, demographic changes, and a decoupling between the West and China.
  • These longer-term structural factors add fuel to the more immediate fire of a property market liquidity crisis and booming government debt and may make it harder for China to see a return to significantly higher GDP growth rates.
  • Developments in the Chinese economy have significant implications for the global economy, both via direct and indirect channels. Work from Banco de España shows that a 1pp reduction in the pace of Chinese growth could cause global growth to decline by 0.4pp in a year. The impact is also unevenly distributed with the largest impact being felt by China’s trade partners and commodity producers.
  • This has particular implications for GCC countries, given their role in global oil markets and the importance of China as a trade partner.
  • Click here to Download Full article

Written By

Jeanne Walters Senior Economist

There was an error during your feedback!

Your feedback is valuable to us and will help us improve.

Jeanne Walters

Related Articles

Subscribe to our newsletter and stay updated on the markets

There was an error during your newsletter subscription!

Please try again to stay updated with all the latest financial news and valuable insights.

Thank you for newsletter subscription!

To stay updated with all the latest financial news and valuable insights.