China’s latest economic data shows a comprehensive slowdown in growth across various sectors. Logan Wright, a partner at the prestigious Rhodium Group, believes that China’s economic miracle has come to an end, and emerging strategic industries are unable to address the economic imbalance issues.
In an interview published by “Voice of America” on September 5th, Wright, based on data and information compiled in his new book, diagnosed and interpreted the current state of China’s economy, particularly since the bursting of the real estate bubble in 2021, leading to a significant slowdown in economic growth.
Wright’s new book, “Broken China: How the Economic Miracle Shattered and What it Means for the World”, is set to be published in the U.S. in late September. He explains that due to low investment efficiency and the accumulation of hundreds of billions of dollars in bad debt, China is no longer able to stimulate continuous domestic demand for households and businesses, relying entirely on exports for economic growth. The emerging strategic industries promoted by the Beijing authorities also cannot resolve the persistent imbalance between investment and consumption in the Chinese economy. Thus, if domestic demand cannot be stimulated, trade tensions will be unavoidable.
According to statistics, from 2008 to 2016 after the global financial crisis, China’s new bank lending accounted for about one-third of the global total, and the ratio of credit to GDP almost doubled.
Wright states that one of the root causes of China’s current economic situation is the reliance on credit and debt to support economic development. Amid financial constraints, the government’s efforts to tax household consumption have faced challenges, and there is reluctance to reform state-owned and local government enterprises. Faced with this dilemma, the Beijing authorities are doubling down on investment-driven growth, focusing on advanced manufacturing. However, the issue with advanced manufacturing, artificial intelligence, robotics, and other emerging strategic industries is that they are capital-intensive industries, offering limited employment opportunities.
Wright bluntly states that if the imbalance between investment and consumption in the Chinese economy persists, all products produced in China will ultimately flow overseas rather than domestically, exacerbating trade tensions between China and other regions in the world. This is because if China cannot boost domestic demand, it will have to continue relying on exports to sustain growth. Therefore, to break free from this growth pattern, Beijing authorities need to change the way capital is allocated and distributed in the fiscal and financial system, but these reforms are extremely challenging.
The Communist Party’s publication “Seeking Truth” acknowledged on September 1st that China’s economy is facing difficulties, admitting that “expectations, confidence, and behavioral choices of some microeconomic entities are changing, and vitality in some areas is weakening,” mentioning that companies “tend to hold cash, are reluctant to expand investment, and are hesitant to increase employment.”
It stated that the economy is facing some challenging difficulties. The problem of strong supply and weak demand, inadequate domestic demand, and downward pressure on consumption and investment growth remain pronounced, with some industries and companies experiencing operational difficulties and polarization.
Data released by the National Bureau of Statistics of China on August 17th showed a comprehensive slowdown in China’s economy across multiple sectors, with July consumer spending stagnation, accelerated contraction in fixed asset investment, and a rise in urban surveyed unemployment rates, apart from foreign trade exports.
According to reports in mainland media, Wang Qing, Chief Macro Analyst at Orient Securities, analyzed economic data and noted that this year, the growth rate of residents’ commodity consumption is significantly weak. Under the combined effects of a higher base last year, weakened subsidy policy effects, and other factors, sales of six major categories of durable consumer goods under the old-for-new subsidy scheme have declined, exerting a greater drag on overall social retail sales. Wang Qing also stated that the ongoing contraction in the real estate market currently has a significant impact on residents’ consumption confidence.