China has been an engine of growth throughout the planet for years. At the beginning of the 21st century, the Asian giant became an essential market for large multinationals and the epicenter of global economic attention. It was when its economy experienced its most buoyant moment, with enormous gains in productivity, the massive arrival of foreign investment and an exodus of millions of workers who moved from the countryside to the city. Even its professional soccer league represented a pole of attraction similar to what Saudi Arabia has experienced in the last year, with the signing of shining stars, attracted by money. Today, however, its economy seems to have lost steam, like the balloon, today a deflated metaphor. So is the Chinese miracle over? We explain below the reasons that explain its great deflation.
During these last four decades, the economic takeoff of the People’s Republic of China transformed not only a huge country of some 1.4 billion inhabitants, but also the global economic reality. No wonder: a quarter of all global growth during these nearly 40 years took place, precisely, in this country.
China’s industrial production triples that of a superpower like the United States
This meant that new factories, skyscrapers and all types of infrastructure multiplied throughout the country. For example, China has more kilometers of highways, subway networks and high-speed rail lines than all other countries in the world combined. Thanks to this process of dizzying growth, China became the world’s great assembler. In fact, at purchasing power parity, that is, taking into account the difference in prices, China’s industrial production is triple that of a country like the United States.
However, now everything indicates that the roar of the Asian dragon is fading. Households are hoarding cash, both demand and supply of loans are plummeting to their worst since 2009, private companies are barely investing, and local governments are cutting spending as much as they can. All of this is what explains, for example, that youth unemployment has broken all records or that the economy is practically in deflation.
The question is why? Why has there gone from talking about the “Chinese miracle” to such an economic cooling? Below are the reasons that explain how China has arrived at this stage.
The five causes of the Chinese crisis
Aging is the first cause that demographers, but also economists, handle. China is an aging country whose population is already shrinking. Less population and, above all, less population of working age means having less demand, less available labor, less entrepreneurship and higher labor costs.
Secondly, the trade and technology war with the United States, unleashed by its former president Donald Trump, is causing many multinationals to begin to see China as an unsafe destination for their investments. And in fact, the inflow of foreign direct investment into China has plummeted in recent years, preferring to opt for other markets.
China is an aging country. This implies less population of working age, less demand, less available labor, less entrepreneurship and higher labor costs.
Third, since 2008, the Chinese economy has accumulated a huge amount of debt, reaching almost 300% of GDP. This is a higher level than that of Western countries. All buildings, skyscrapers and infrastructure have been financed with public debt. A situation that has led many local governments to ask the central government for a bailout.
A quarter of all global growth during these nearly 40 years took place in China
Finally, a reason two-headed: the bursting of the real estate bubble and the drop in productivity and profitability of Chinese companies. The truth is that the country’s economy has become increasingly inefficient and more dependent on the brick industry. An excess of investment that has caused them numerous problems.
Now, how can China counteract this situation? How far do China’s problems go? What can they mean for the future of this country? Has the Chinese miracle really come to an end? What measures is Xi Jinping’s government taking to confront this situation? We tell you all the details in the latest video from Si lo Hubiera Sabido, Mutuocitos’ financial information channel.
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