Six Red Flags Pointing to a Slowdown in the Chinese Economy
The People’s Republic of China is the first in the world. second largest economyresponsible for a quarter of global GDP growth this millennium, so when the country catches a cold, the world notices.
In recent months we have seen a spate of bad economic news for China, putting the country’s post-pandemic recovery at risk and world economic growthendangered.
In this visualization, we look at six major indicators that point to a slowdown in China’s economy. The data comes from China’s National Bureau of Statistics, the People’s Bank of China, and the General Administration of Customs, to see what’s flashing red.
Six red flags for China’s economy
1. GDP
China’s annual GDP growth rate has averaged 9% since 1978, when the country opened up to the global market under Deng Xiaoping.
However, growth seems to have slowed down, up to 0.8% (qoq) in the second quarter of 2023 driven by weakness in the tertiary sector, which includes retail spending and problematic real estate. This follows a stronger 2.2% figure in the first quarter, buoyed by pent-up demand released by the end of COVID-era lockdowns.
In annual terms, China’s GDP grew by 6.3% year-on-year, below the expected rate of 7.3%.
2. Exports
exports fell 14.5% in Julymarking the third straight month of declines and reaching lows not seen since February 2020. Imports, meanwhile, fell 12.4%, reflecting cautious consumer sentiment.
Regionally, exports fell year-on-year to China’s three largest customers, ASEAN, the EU and the United States, by 17.4%, 15.1% and 20.8% respectively.
There was a silver lining, however: exports to sanctions-ridden Russia rose 51.8%, but that wasn’t enough to offset the overall downward trend.
3. Consumer Price Index
The consumer price index entered deflationary territory for the first time since 2021, with prices falling 3% year after year. The fall was led by Articles and services for the home, Food and tobacco, and Transport and communications.
At the same time, the prices paid by producers for industrial products (IPP) fell by 4.4% (year-on-year), the tenth consecutive month with a negative reading.
4. Youth unemployment
And while the headline unemployment rate held steady at 5.3% in August 2023, up slightly from 5.2% the previous month, it masks serious weakness among urban youth, ages 16-24.
In July, the urban youth unemployment rate reached 21.3%the highest ever recorded in the country, prompting China’s National Bureau of Statistics to discontinue future releases.
5. Yuan vs. USD
Given the spate of bad economic news, it is not surprising that the yuan fell to a minimum of 16 years against the US dollar on August 16, 2023 in offshore operations.
In an effort to stabilize the currency, major Chinese state banks were seen buying yuan in offshore money markets. At the same time, the spread between the fixed exchange rate set by the People’s Bank of China and the offshore exchange rate increased to more than 1,000 basis points.
6. New loans
Compounding the gloomy economic mood, people borrowed less money, according to the latest figures provided by the government.
New bank loans fell to 346 billion yen in July, up from 3.05 trillion yen the previous month. This was the lowest reading since late 2009, and less than half the 780 billion yen economists had predicted.
Whats Next?
External relationships He recently published an article with the provocative title “The end of China’s economic miracle” arguing that China’s problems could be an opportunity for the United States.
And while this may be a bit premature, the Middle Kingdom has some serious structural problems to contend with, many of it of its own making. Some of the major challenges include a crackdown on the tech sector, a collapsing housing market, a biggest debt crisisand a shrinking population.
But large-scale government intervention seems nowhere in the offing, beyond urging consumers to spend more and blaming the Western media for engaging in “cognitive warfare.”
It’s no wonder consumer confidence has sunk so low. At least we think so: the Chinese government also stopped publishing that.
