Can China’s slumping economy be saved?

China’s economy is struggling. With an ambitious target of 5% growth this year, the country is dealing with weak consumer spending, a failing property market, and international pushback against its goods.

By September, it was clear that hitting the goal was just plain impossible. In a last-ditch effort, Beijing rolled out stimulus measures, cutting interest rates and pumping liquidity into the system.

But economists say success is far from guaranteed. Deflation fears keep rising, along with concerns about whether China will enter a Japan-like stagnation.

Now, all eyes are on China’s ability to revive its economy. Less than 20% of economists surveyed by Bloomberg think China will hit its growth target next year. 

Despite export numbers being the highest in two years, countries are getting more and more concerned about the flooding of cheap Chinese goods into their markets, driving down local prices.

China’s Vice Finance Minister, Liao Min, continues to defend their manufacturing prowess, arguing that it helps combat climate change and inflation globally. But no one’s buying that.

Why the world should care

China’s economic decline is everyone’s problem. The International Monetary Fund (IMF) predicts that the country will remain the top contributor to global growth until at least 2028.

Its share of global growth is expected to hit 22.6%, which is double the U.S. level. For instance, Brazil and Australia, which rely heavily on China’s infrastructure and property investment, are suffering now.

Excess steel that China can no longer absorb domestically is flooding the global market, driving prices down and hurting companies worldwide.

Automakers like Stellantis NV and Aston Martin are also suffering, with weak demand from Chinese consumers hitting their bottom lines.

Global brands like Starbucks and Estée Lauder are seeing a huge drop in sales as Chinese consumers cut back on spending. The manufacturing sector had contracted in all but three months since April 2023.

The U.S. is tightening restrictions on China’s access to high-end semiconductors and other key technologies, a decision Washington calls “strategic competition.”

But in China, this is seen as an attempt at economic containment. Things are so dire that China’s bank loans to the real economy shrank for the first time in nearly two decades.

Local governments, already buried under mountains of hidden debt, are also suffering as their revenues from land sales plummet.

Without that money, they can’t fund budget expenditures, further dragging down economic recovery efforts.

China’s real estate crisis is making things worse

Real estate has been the cornerstone of China’s economy for years, especially since Xi Jinping came to power. But this once-mighty engine of growth has run out of steam.

In 2020, the government launched a crackdown on heavily indebted developers, hoping to reduce risks to the financial system. It worked, but not without severe consequences.

Housing prices fell, and many developers defaulted. Worse, some stopped construction on homes that were already sold but not yet delivered.

The property market collapse wiped out $18 trillion in household wealth. That’s wealth that could’ve been spent boosting the economy, but instead, people are holding onto their money, afraid to spend.

China’s consumers are no longer the enthusiastic post-Covid shoppers the world expected.

After the country’s reopening in late 2022, hopes were high that “revenge shopping” and travel would bring a consumer-led recovery. But that never happened.

The government isn’t sitting idly by though. In May, Beijing unveiled a $43 billion central bank funding program to help government-backed firms buy unsold homes from developers.

Though local authorities have been slow to get on board. Out of more than 200 cities, only a handful have joined the initiative.