China’s economy, the world’s second-largest, is now in deep distress and its successful model of growth for 40 years stands “broken”, a prominent American financial publication has said, noting that signs of trouble extend beyond China’s dismal economic data to distant provinces.
The Wall Street Journal in a major Sunday story wrote that economists now believe China is entering an era of much slower growth, made worse by unfavourable demographics and a widening divide with the US and its allies, which is jeopardising foreign investment and trade. Rather than just a period of economic weakness, this could be the dimming of a long era, it commented.
“Now the (economic) model is broken,” the financial daily said. “We’re witnessing a gearshift in what has been the most dramatic trajectory in economic history,” Adam Tooze, a Columbia University history professor who specialises in economic crises, was quoted as saying by the Wall Street Journal. According to the report, the total debt, including that held by various levels of government and state-owned companies, climbed to nearly 300 per cent of China’s GDP as of 2022, surpassing US levels and up from less than 200 per cent in 2012, according to Bank for International Settlements data.
In Beijing’s corridors of power, senior officials have recognised that the growth model of past decades has reached its limits, the daily wrote. In a blunt speech to a new generation of party leaders last year, Chinese President Xi Jinping took aim at officials for relying on borrowing for construction to expand economic activities, it added. “Some people believe that development means investing in projects and scaling up investments,” Xi said, warning: “You can’t walk the old path with new shoes.” Xi and his team so far have done little to shift away from the country’s old growth model, the financial daily wrote.
China’s gross domestic product (GDP) grew 5.5 per cent year-on-year in the first half (H1) of 2023, the country’s National Bureau of Statistics (NBS) said in June. China’s GDP reached 59.3 trillion yuan (about 8.3 trillion US dollars) in the first half, according to the NBS data. In the second quarter, the country’s GDP expanded 6.3 per cent year on year, China’s official media quoted the NBS as saying. Meanwhile, China on Monday also trimmed for the second time this year its one-year loan prime rate (LPR) by 10 basis points from 3.55 per cent to 3.45 per cent and did not change the five-year rate, which stands at 4.20 per cent, to revive economic growth in the world’s second-largest economy after that of the United States.