China’s economy is facing a heavy burden of excess, including excessive debt, over-construction, and surplus production capacity, which are akin to time bombs ready to explode at any moment.
Millions of vacant or unfinished apartment buildings, trillions of dollars in local government debt crisis, and overexpansion of production capacity to seize global markets are eroding the economic foundation of China.
At the same time, the scale of these excesses also highlights the difficult situation Beijing is facing in the midst of the looming US-China trade war.
According to estimates by Barclays Bank, since 2021, the property market crash has destroyed about $18 trillion of Chinese household wealth, a figure that surpasses the losses incurred by Americans during the 2008-2009 financial crisis.
The property market crash, coupled with the trauma brought about by Beijing’s lockdown measures during the COVID-19 pandemic, has led the Chinese people to respond by reducing consumption.
Despite the Chinese Communist Party’s belief in the “rise of the East and fall of the West,” the reality is that the United States still drives the global economy, while China is struggling amid slowing growth. Almost no one now expects China under Communist rule to surpass the United States before the mid-century.
The report points out that China is facing the challenge of an aging population, which will further weaken economic vitality. The decrease in the working-age population is eroding the demographic dividend that has been driving economic growth.
Over the past few decades, China’s economy has mainly relied on massive investment to drive growth. Initially, these investments fueled export growth in Chinese manufacturing and the expansion of urban infrastructure. However, year after year of repetitive investment has diminished the marginal benefits of this strategy, leaving behind massive debts, a large number of vacant apartments, and excess industrial capacity.
In terms of debt alone, the total borrowing of governments, households, and enterprises in China has reached nearly three times the annual GDP total. From some indicators, China’s debt levels and debt burdens even exceed those of the United States before the 2008 financial crisis or Europe ten years ago mired in a debt crisis.
Since 2020, the Chinese real estate market has been persistently sluggish. According to the latest estimates at the end of November 2023, China has as many as 80 million vacant houses, equivalent to half of the entire housing stock in the United States.
To counter the economic slowdown, Communist leaders have adopted a set of countercyclical policies, injecting funds into China’s already massive industrial sector. This measure has further expanded industrial capacity, while prices have been declining for two consecutive years.
Against this backdrop, Chinese manufacturers are increasingly looking to overseas markets, using low-price strategies to compete for market share. However, this behavior has sparked trade frictions with Western countries as well as emerging markets like Brazil and India.