China falling: The faltering Chinese economy and what it could mean globally

Some years ago, the United States’ biggest competitor was Japan. In my macroeconomics classes we discussed how the Japanese economy would possibly surpass the U.S. economy in the 1980s. It did not happen.

More recently, over the last 20 or so years, the buzz has been all about the Chinese economy possibly eclipsing the U.S. I have maintained that it is not going to happen. It is the middle class that sustains economies, and the Chinese middle class, which has grown from 3% of the economy in 2000 to over 50% in 2018 is simply not robust enough. According to the Pew Research Center, the middle class in China is defined as living on $2 to $50 a day. The United Nations defines the International Poverty Line as $2.15 a day, adjusted for cost of living. Based on that definition, even some Chinese middle class are living in poverty. Some cannot even afford to buy the goods and services that they are producing. Selling those goods externally is what sustains the Chinese economy.

CNN.com reports that after a rapid spurt of activity earlier last year following the lifting of COVID-19 lockdowns, growth in China is stalling. Consumer prices are falling, a real estate crisis is deepening and exports are in a slump. Unemployment among youth has gotten so bad the government has stopped publishing the data. The yuan also reached its lowest level in 16 years in 2023. Adding to that are strained relations with their customers, such as the U.S., and a shrinking population for the first time in 60 years. China is struggling.

China is the world’s second largest economy. According to Axios.com, the Chinese economy grew 5.2% last year. That would be great for any other nation, but not for China. At the end of December, prices in China fell for the third straight month. Again, good for many others but not China, as demand has slowed down.

The property sector is in the doldrums as entire developments and office properties remain empty. Numerous properties built to house the burgeoning middle class are now beyond their reach. Some of the developers are going out of business, as their forecasts have not met expectations. Developers like Evergrande defaulted on $300 billion in debt and filed for bankruptcy. The Chinese real estate sector crashed in 2023. “As developers ran out of money, projects were halted, giving rise to ‘ghost’ developments….”

In December 2023, Moody’s credit agency downgraded its outlook for China’s credit rating from stable to negative. Moody’s did, however, retain China’s credit rating of A1, meaning the credit risk is still low. There may be a need for bailouts and government support during this period of uncertainty.

According to Japantimes.com, foreign investments in China turned negative in 2023 for the first time since records were kept. Many companies are divesting in China. They are not so confident about the Chinese economy. Even consumer confidence is waning, as individuals feeling uncertain about the economy are opting for cheaper and generic items.

In the employment arena, the jobless rate for youth 16-24 was 15%. People are cutting back, not spending as much, and considering moving out of the big cities such as Beijing and Shanghai. In June 2023, youth unemployment reached 21%. Soon after that, the government stopped reporting those numbers. With the economy faltering, educated college graduates are settling for lower-paying jobs or face layoffs.

On top of the property crisis, China is also grappling with local government debt, a stock market rout and a decline in exports amid geopolitical tensions. The problems are many and could have ramifications for the rest of the world, including access to reasonably priced goods and services, supply chain challenges, debt challenges, consumer confidence, access to markets and stable foreign investments. The old saying goes, “When America sneezes, the world catches a cold.” I certainly hope that’s not the same case with China. We know what COVID did to the rest of the world.

Kojo Quartey, Ph.D., is president of Monroe County Community College and an economist. He may be reached at kquartey@monroeccc.edu.

This article originally appeared on The Monroe News: Kojo Quartey: Faltering Chinese economy, what it could mean globally