Derek Scissors explores communist China’s economic challenges.
The China economy field is full of people repeating the government’s numbers and “analyzing” them. If that’s sufficient, China watchers can just project a gradual fall from 5 percent GDP growth followed by a gradual fall from 4 percent, and the next decade is done. In addition, we should believe that China was pursuing market-oriented changes and rebalancing in 2007, property investment genuinely added to GDP in 2017, and consumption will be stronger in 2027. Consumption will always be stronger soon. Extreme skepticism of official Chinese data and policy claims is frequently warranted, but it’s rarely found.
This forecast is written accordingly. It is not a forecast of official GDP growth, which will continue to smoothly decline. It’s a forecast of reality. To the upside, there is an option for a challenging and temporary but meaningful economic revival in reflation of property. This avoids General Secretary Xi Jinping’s obvious aversion to pro-market reform and would be more cost-effective than undirected fiscal or monetary stimulus. Given some months for implementation, property reflation would make for a strong multiyear period for the economy. For the longer term, weakness is guaranteed due to debt and especially demography. Growth may persist, but barely, and China will not be a truly rich country in 10 years, 20 years, or 30 years. …
… The setting for 2026 is therefore an economy continuing to gradually fade. Excessive reliance on investment has been swapped for a return to reliance on exports, but partners will eventually not permit PRC production to account for a larger share of their consumption. The government’s record of data manipulation and repression clouds the picture, but it’s unlikely the data are massaged to make them look poorer. That leaves the situation no better than at 4 percent nominal GDP growth for 2025, slowing, and with little reason to anticipate improvement.
