China’s Economic Prospects Look Dubious from buzai232's blog

To hear several media sources tell it, China is almost magical. It has beaten the Covid pandemic before the United States or the rest of the world, and its economy is roaring back much faster than others. It is true enough that China’s official statistics report a drop in infections and impressive economic growth figures through October, the most recent month for which data are available. Though Chinese figures, most especially from official sources, always have a hefty dollop of political leavening, there is nonetheless reason to accept these reports as broadly true of China’s present reality. To get more economy news today, you can visit shine news official website.

But the picture of China’s economic outlook must go beyond these immediate and encouraging new items. Looking out for more than a few quarters, China’s economic prospects seem set to encounter significant headwinds. One will emerge from the country’s huge demographic problem. An inevitable and rather dramatic reduction in the relative size of China’s workforce will impose a considerable growth restraint on the economy. What is more, the country’s leadership has failed to remedy the economy’s lopsided growth model as they intended more than ten years ago. This failure will make China more debt prone than it already is and further restrain growth prospects, perhaps even more severely than the demographic challenge.

For now, China’s National Bureau of Statistics describes a considerable economic snapback in the summer’s re-opening. The overall real economy was in the summer quarter 4.9% above the same period in 2019, slower than China’s historic growth rate but impressive nonetheless. Industrial production in October was 6.9% above year ago levels and retail sales were 4.3% higher during that same time. Investment spending on productive facilities rose a less impressive 1.8% but should pick up in coming months as direct foreign investment in China has risen a remarkable 18.4% over this time. Imports have surged 13.2% and exports rose almost as fast, up about 10%. This all speaks to a powerful growth momentum going into the closing months of this year and 2021.
Encouraging as this economic pickup is for the period immediately ahead, China’s demographics cast a long shadow over the longer-term future. Much of China’s amazing growth over the last 40-some years reflected the fact that the country had a large and growing workforce. That is no longer the case. Because Beijing for decades enforced a one-child policy on its families, it has, no doubt inadvertently, ensured a reduced flow of young people into the workforce. Now that many of the eager workers of China’s great growth are retiring, the country faces an ever more acute shortage of workers. That relative shortage of productive people cannot help but have a limiting effect on the economy’s ability to expend. And the situation looks severe. United Nations statistics project that over the next few decades China’s workforce will shrink 6.8%. Whereas today China has almost 5 people of working age for every American worker, these demographics will over time shrink that clear economic edge by half.

On top of this problem, China also labors under a fundamental flaw in its growth model. The approach China still uses worked wonderfully well in the early stages of economic development. Like Japan before it, China years ago oriented its economy toward exports. Official policy discouraged consumption to free up resources to build the factories and infrastructure, including worker housing, needed to manufacture and move products for sale to the developed world. Because China’s economy was so underdeveloped, this approach paid handsome dividends, as the stupendous growth recorded in the latter decades of the 20th century and the early years of this century testify. But as Japan had learned before and Beijing admitted, the model was only good for the initial decades of growth. Chinese Premier Wen Jiabao made that clear as early as 2007, when he called out the limitations of the export-investment approach and pledged to sustain future development by shifting the growth model toward the consumer-driven approach of the developed world.


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