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Wednesday, May 22, 2024

China’s economy is faltering as its population decreases

The Chinese economy is facing some distinct challenges, with economic growth slowing and the population shrinking. At the World Economic Forum in Davos, Li Qiang, the country’s prime minister, likened the Chinese economy to the Alps, evoking an undulating mountain range that is best appreciated from a distance. His analogy captures the complexity of the situation – from afar, it may look stable, but closer examination reveals its tumultuous nature.

Official figures released recently confirmed two notable shifts in China’s economic landscape: a declining population and a shrinking GDP. The Chinese population has fallen for the second consecutive year, a trend that presents significant demographic and economic challenges for the country. The aging population, coupled with a decline in the number of births, indicates that China is experiencing a significant demographic shift.

It’s concerning that despite having a large young workforce, China is struggling to employ its younger workers. The unemployment rate among urban youth has exceeded 21% and even after revising the measure, the revised youth unemployment rate in China’s cities remains high at 14.9%. The decline in birth rates and employment challenges point to a looming issue for the country.

In terms of economic growth, China’s nominal GDP grew by only 4.6% in 2023, restrained by deflationary pressures. Prices across the economy are falling, resulting in a decline in real growth as well. Despite efforts to stimulate the economy, such as easing monetary policy, China’s growth remains wobbly, and the country continues to face challenges in the wake of regulatory crackdowns and geopolitical rivalries, particularly with the United States.

Furthermore, the economic landscape in China is complicated by its exchange rate dynamics. The yuan has weakened against the dollar, and China’s GDP, when converted into dollars, fell in 2023, contrary to America’s GDP, which registered growth. This points to broader economic challenges and raises questions about China’s future relative to the United States in terms of economic prowess.

What’s clear is that China’s recent setbacks aren’t mere blips but potential indicators of a more fundamental issue, leading to discussions about “peak China.” The country may be at the cusp of a crucial development in its economic story, raising questions about its future trajectory.

While the challenges are significant, it’s essential to consider the broader implications of this shift in China’s economic landscape. It’s a reminder that no economy is impervious to change, and changes in one country can reverberate globally. Observing the nuances and complexities of China’s current economic situation is essential for a well-rounded understanding of the broader economic landscape. Let’s watch closely, listen keenly, and discern the patterns emerging from China’s economic journey. Perhaps in the coming years, the view will reveal shifts that echo across the world.

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