China's economic woes deepen

The Chinese economy, which was once a beacon of hope as the world's second-largest economy, is now faltering. Domestic consumption, imports, exports, and high debt levels are all contributing to the crisis. The hope of becoming a global engine may not materialise as young people losing their jobs becomes a common occurrence.

The Chinese economy is now in continuous decline. Four years ago, it was a contender to dethrone the United States as the global economic player. However, the impact of the Covid-19 pandemic on both China and the global economy has delivered a significant setback.

Previously, China relied heavily on the real estate sector, which accounted for up to 30% of its GDP. When the real estate bubble burst, China's economy suffered a major blow.

Analysts believe that the only way for China to recover is to focus on expanding its exports. Domestic consumption is unlikely to sustain the economy as China is currently facing record-high unemployment among young people.

Before the Covid-19 crisis, China was expected to easily surpass the US as the world's leading economic power in the near future. However, the economic impact of the virus has affected the global economy, and China's elevation to No 1 has been delayed.

Even the largest economy in the world, the US, has experienced significant challenges and had to increase its debt ceiling once again. China, considered the main rival and nemesis of Uncle Sam, also suffered setbacks but is still seen as a potential economic driving force, especially in the Asia-Pacific region.

However, after China’s economy reopened, the situation did not improve as expected. On Tuesday (June 20), China cut interest rates for the second time in a week, following new data showing the highest unemployment rate in history among young people.

The unemployment rate currently stands at 20.8%, with 20.4% of unemployed individuals aged 18-24. Some analysts are describing China's current situation as "the last gasp" as it struggles to survive.

The real estate sector, which is a major component of China's domestic consumption, is also suffering. In late 2022, China's economy showed signs of recovery, but then soon began to weaken again. Industrial production in the world's factory failed to show significant growth. Importantly, exports, which are the main driving force of China's economy, slowed down noticeably. Accumulated debts since the Covid-19 crisis became more evident, especially in the real estate sector that drives domestic consumption, leading to a bursting of the housing bubble.

In recent times, buying real estate, including housing and condominiums either as homes or investments, has been popular among Chinese citizens. However, the apparent enthusiasm of buyers and sellers hides an underlying problem of mounting debt. Developers have relied on loans, and buyers have resorted to borrowing and accumulating debts to hold property. This has led to a situation where China's GDP growth and nominal house prices are heading in the same direction, a situation akin to a debt-driven growth model.

In summary, the Chinese economy faces significant challenges from a prolonged economic downturn, high debt levels, faltering exports, and a housing market bubble. The hope of China becoming the global economic powerhouse may not materialise as expected.