China’s many systemic problems dominate its outlook for 2024 | George Magnus
www.theguardian.com
Japan’s example 30 years ago shows islands of excellence can combine with deep structural imbalances

Cross-posted from: https://beehaw.org/post/10753302

The Chinese Communist party’s prickly attitude to criticism is not uncommon. The reality, though, is that systemic problems have over the years become features in China’s $19 trillion economy. The real estate market has tipped over after an almost unbroken 20-year boom, which the government itself encouraged. At about a quarter of GDP, housing now faces years of shrinkage as it adjusts to chronic oversupply and lower household formation. Property developers, local governments and state enterprises have high levels of debt and many face debt service difficulties. The virtual absence of inflation reflects inadequate aggregate demand.

Stalled productivity growth, the politicisation of regulation and the business environment, rapid ageing, high youth unemployment and inequality also figure prominently.

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    It may seem churlish to draw attention to these things in the world’s second-largest economy, centre of global exports, manufacturing and supply chains, and home to brands such as Alibaba, Tencent and TikTok.

    Yet Japan, 30 years ago, reminds us that it is quite possible to have islands of technological excellence and leadership, and also deep economic imbalances, deflating asset bubbles, over-indebtedness, and institutional weaknesses that compromise growth and prosperity.

    Last month, the annual Central Economic Work Conference set out priorities for 2024, including science and technology innovation, stronger demand, stability, rural development and integration, and low carbon and ecological investment.

    Yet the government also said that impediments to recovery remain, citing inadequate demand, overcapacity in several sectors, weak social expectations and “still numerous risks and hidden dangers”.

    It is also trying to strengthen its own manufacturing capacity in new electric vehicles, renewables and semiconductors through the passage of the Inflation Reduction and Chips and Science Acts, and the imposition of export controls on sales of sensitive products to China.

    Faced with an array of domestic economic problems, China should ideally substitute market and structural reforms for the more familiar strategy of doubling down on already high manufacturing investment and exports.

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