This should be the year when China’s economy, freed from the world’s tightest Covid-19 controls, bounces back to spur global growth. Instead, it faces a multitude of problems: sluggish consumer spending, a shaky real estate market, flagging exports amid US efforts to reduce risk, record-breaking youth unemployment and huge local government debt. The effects of these tensions are being felt around the world, from commodity prices to stock markets. Worse still, President Xi Jinping’s government does not have much ability to put things right. That has sparked debate over whether the Chinese economy is headed for a Japan-like malaise after 30 years of unprecedented growth.
China’s official target is growth of around 5% this year. With a global economy expected to grow a meager 2.8% in 2023, that doesn’t look too bad at first glance. However, the reality is that China was still under Covid-Zero rules in 2022, which is a low basis for comparison. Excluding this effect, growth in 2023 is likely to be closer to 3% — less than half the pre-pandemic average, Bloomberg Economics said. In addition, the consumer inflation rate in China was flat in June, while factory prices continued to fall, raising concerns about the risk of deflation – a damaging downward price spiral that can wreck an economy.
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