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What happens if China’s economy collapses?

China, with over 1.4 billion people, is the second largest economy in the world, with the nation posting a compound annual growth rate of 6.7 percent since 2012, thanks in part to its dominance in manufacturing and cheap commodity exports.

As of 2022, China had a GDP of $17.7 trillion, just behind the United States with a GDP of $22.9 trillion. Many economists have forecast that the former will become the world’s largest economy by 2030.

However, the country’s economy has steadily lost momentum this year as it adjusts to a strict zero-COVID strategy. As a result, business and consumer activity in the country has virtually ground to a halt, much like in the early stages of the pandemic, while global demand has slumped and youth unemployment has skyrocketed.

Adding to the country’s woes, the Chinese regime is cracking down on developer debt, which has led authorities to tighten home-buying rules and limit bank lending, while urging powerful real estate magnates to pour resources and influence into the community to support Beijing’s interests.

This led to a real estate market crash that has further hurt the economy over the past year.

Meanwhile, the country’s GDP grew just 0.4 percent year-on-year in the second quarter, and although it grew 3.9 percent in the third quarter, many economists believe the economic situation for China will deteriorate, increasing the chances of a Increase increased Global recession.

Is China’s Economy Falling?

China’s current economy is slowing, with industrial production up 5 percent year-on-year in October, missing market expectations of 5.2 percent growth and slowing from September’s industrial production growth of 6.3 percent.

Meanwhile, retail sales, a measure of consumption, fell 0.5 percent in October; the first since May, when they fell 6.7 percent after Shanghai, the country’s largest business hub, was placed under a citywide lockdown.

Elsewhere, real estate investment fell 16 percent in October from a year earlier, the biggest drop since January-February 2020, according to a Reuters analysis based on data from the National Bureau of Statistics.

In addition, the country is suffering from a sharply devalued currency this year.

Adding to its woes, in October the International Monetary Fund (IMF) lowered its forecast for China’s GDP growth in 2022 to 3.2 percent, the second-lowest since 1977 and well below the 5.5 percent target announced in March of the Chinese regime.

The IMF said the trimmed forecast reflected the “impact of the zero-COVID lockdowns on mobility and the crisis in the real estate sector”.

China’s real estate collapse 2021

China’s GDP grew 8.1 percent year-on-year to 114.37 trillion yuan (about $18 trillion) in 2021, in line with economists’ expectations.

Towards the end of the year, however, economic activity slowed significantly, a trend that continued for much of this year.

But amid a global pandemic and increasingly crumbling ties with the United States and other major economies, 2021 will no doubt be remembered for China’s crippling housing market crisis, which threatens to have a financial impact on the broader economy even today.

Beijing launched a large-scale crackdown on developer debt in 2021 to dominate the market, but the move left developers struggling.

China’s real estate company Evergrande, then the country’s second-largest real estate developer, has repeatedly warned investors that it is likely to default on its staggering $300 billion in debt. Ultimately, it did just that. Other real estate developers such as Kaisa and Shimao soon followed.

This impacted the real estate industry as a whole, leading to a slump in housing construction, in which home sales plummeted and many homeowners refused to pay their mortgages on uncompleted properties.

As a result, the real estate sector, which accounts for a fifth of China’s GDP, suffered huge losses.

In a sign of more trouble, Country Garden, China’s largest real estate developer, reported that its profit fell 96 percent in the first half of 2022, down $89 million in the first six months of 2022 compared to the 2, $2 billion that he had reported during the same period in 2021.

In an effort to restart the real estate industry, Beijing has pledged billions of dollars — about 200 billion yuan ($27 billion) — in loans to help struggling developers complete construction on projects.

China’s economy in trouble

At a press conference in Beijing earlier this month, Fu Linghui, spokesman for the National Bureau of Statistics, acknowledged that China’s tough measures to contain the COVID pandemic are putting “tremendous” pressure on China’s current economy, noting that the risks to the world economy grew.

“The impact of the triple squeeze on economic operations — contracting demand, supply shocks and weakening expectations — is mounting,” Fu said.

Still, Fu believes China’s economy is likely to recover steadily, noting that the country’s economic performance has shown resistance this year despite a resurgence of COVID outbreaks and weakening demand.

The Chinese Communist Party (CCP), meanwhile, has rolled out a series of stimulus measures to prop up the economy, including a 1 trillion yuan ($146 billion) package announced in August aimed at improving infrastructure, small businesses and real estate to boost real estate, alleviate power shortages, alleviate droughts, and secure rice production during the important mid-season harvest, among others.

In October, the IMF revised its growth forecast for China’s economy over the next two years, lowering its 2023 GDP forecast to 4.4 percent from an initial 4.6 percent, noting that a “worsening crisis in China’s real estate sector is undermining growth could”.

planned economy

China used to be a centrally planned economy, also known as a command economy or communist economy, in which economic decisions, including those about the production and distribution of goods and the allocation of resources, were made by the regime rather than by market participants or autonomous agents.

This approach was maintained from 1949, when the People’s Republic of China was founded, until the end of 1978.

Does China have a mixed economy?

China transitioned to a mixed economy after the end of the Maoist period, a system that combines aspects of capitalism and communism.

Under the current economic system, there are both private companies and state or state-owned companies that coexist, and a certain degree of economic freedom in the use of capital is applied.

However, in certain sectors of the economy, such as public services and welfare, the regime still intervenes to help the country achieve its social goals.

Deng Xiaoping, former CCP leader from December 1978 to November 1989, famously called the system “socialism with Chinese characteristics.”

China’s current leader Xi Jinping – who recently secured a third term as head of the CCP – later declared a “new era” of socialist modernization for China, in which the CCP has seemingly relaxed control of the country’s economy, but responsibility for the company generally retains.

How China’s economy will develop in the future is difficult to predict. However, should a real collapse occur, it would have devastating effects on the rest of the world, particularly in terms of foreign trade and financial markets. However, whether these effects will be long-lasting or short-term is even more difficult to predict given the current volatile state of the global economy.

consequences

Katabella Roberts is a news writer for The Epoch Times, focusing primarily on US, world and business news.

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