China has been a global superpower for decades. Their vast labor force, low wages and limited labor and environmental laws influence their power. This has impelled several businesses from developed nations to send their factories or buy needed supplies from China, making them the world’s most powerful factory. Changes to many internal policies and global competition has China facing its fall from importance in the worldwide market.
Due to overpopulation, China enacted a one-child policy, where families were only allowed to have one child. This created less of a population for future generations, but it has hurt China in the long term. Most Chinese adults focus on their careers and do not wish to have children, and the women worry that they won’t advance in their jobs if they have a child. China modified this to a two-child policy, which led to the introduction of the three-child policy. This was met with little enthusiasm from the younger generation and was still too small to help their problem.
Simultaneously, China is facing a spike in youth unemployment, reaching new highs of the national unemployment rate of 21.3 percent. Their Zero-Covid policy and more regulations on the teaching, technology and property sectors have influenced this spike in unemployment. These factors risk sending China into a wider fiscal deficit and a higher debt burden, resulting in less cash flow to help sustain their economy.
Along with this issue, China’s most significant industry is suffering from the pandemic. China’s most important domestic sector has always been its property sector. By the summer of 2021, Beijing was trying to encourage home buying from its citizens, and though there was slight growth, there was a decline in prices by 0.1%. With declining sale prices, developers have been making less of a profit. The reduction in costs is due to diminished interest in owning property. Many Chinese families pay 5%-6% on homes they never once entered-indeed were never built. This is because of their way of buying property under the Presale Method. If you were to purchase property, you would have to put in a deposit into a bank for that property, which will oversee how the funds are used but before the house is even built.
Another factor is that developers must pass a more stringent credit check to receive development loans. This was done to tighten the creditor system, and the “three red lines” credit check has stalled many developers from receiving funds to move forward with their developments. Along with many other factors, housing values have dropped 22% compared to the year prior.
During the pandemic, China had a boom in trade. This past August, their exports fell 8.8% while their imports dropped 7.3%. This has been affected by the housing crisis and weak consumer spending, but the most prominent factors have been the decline of purchases of Chinese-made goods from developed nations due to their slower economic growth. The growing friction between the U.S. and China for example. Their trade dropped from 21.8% at their peak to only 14.6% after Trump put more tariffs, increasing tension amongst these nations.
There are many more reasons surrounding China’s economic fluctuation from this past year. Past scandals regarding humanitarian rights, regarding the Uighur minority group, have encouraged companies to move their deals with factories elsewhere for legal and ethical reasons. As we look at these three main factors, we can also see where other economies are hurting and where others are rising. Many believe India will be the next powerhouse compared to China since they have many of the strengths and opportunities that China initially had.
With that being said, we must ask ourselves, how much will a fall in China’s economy help or hinder the rest of the world? They have aligned themselves with Russia, creating more trade deals with them during the increase of tariffs, which Russia has levied on themselves since the beginning of the war. China’s economy is also highly intertwined with many other Western countries since they make parts that our companies need to sustain their businesses.
Many say that this is just a slump for China which will rise again with the introduction of different industries, but with their internal issues happening, could it be possible that their star is dimming?
