China’s economy: experts warn of 5 misunderstandings

The push to enhance cooperation comes as China’s economy suffers from slowing growth, a housing crisis, high youth unemployment and U.S. restrictions on key technologies resembling chips crucial to artificial intelligence.

It result in predicts that the decades-long growth story is coming to an end and even one so-called lost decade of stagnation. Looking at China’s aging population, veteran strategist Ed Yardeni said last yr that the country could develop into “the largest nursing home in the world.”

But a number one China expert warned against such pessimism, saying it could cause the US to develop into complacent and jeopardize its economic and security priorities in Asia.

“Although its growth has slowed in recent years, China is likely to grow twice as fast as the United States in the coming years,” wrote Nicholas Lardy, a senior fellow on the Peterson Institute for International Economics Foreign Affairs on Tuesday.

He identified five misconceptions about China’s economy.

The first pertains to the view that China isn’t any longer gaining ground on the US economy. While China’s GDP fell from 76% of US GDP in 2021 to 67% in 2023, Lardy attributed this to “temporary” aspects resembling the outflow of foreign capital and the weaker exchange rate.

“The International Monetary Fund forecasts that Chinese prices will rise this year, which would boost China’s GDP measured in renminbi,” he added. “Nominal GDP, measured in U.S. dollars, almost certainly will This year the country is once again approaching and likely to exceed that of the United States in about a decade.”

The second misconception is that income, spending and consumer confidence in China are weak, which Lardy says is just not supported by the information. Instead, real per capita income increased by 6% last yr, with consumption growth exceeding this rate.

The third misconception he identified is that deflation is entrenched in China. While consumer prices were largely flat last yr, core prices, which exclude food and energy, rose 0.7%, in keeping with Lardy. While prices for tools and certain raw materials fell in 2023, that was as a consequence of lower prices for energy and other raw materials, which have since recovered this yr.

The fourth reason is lower real estate investment, which has traditionally been an outsized driver of the Chinese economy. Lardy admitted that construction starts in 2023 were half as high as in 2021.

“But you have to look at the context. In the same two-year period, real estate investments fell by only 20% as developers allocated a larger portion of these expenditures to complete residential projects that they had started in earlier years,” he explained. “Completions increased to 7.8 billion square feet in 2023, outpacing construction starts for the primary time.”

The fifth misconception is that Chinese entrepreneurs are fleeing the country as Beijing cracks down on corporations, particularly within the technology sector. While the private sector’s share of total investment declined after 2014, Lardy said this was largely as a consequence of the true estate market. Excluding real estate, private investment rose nearly 10% last yr, he added. He also pointed to data showing that the variety of family businesses increased by 23 million to 124 million businesses in 2023.

“Although China is grappling with many problems, including those stemming from Xi’s efforts to exert more control over the economy, exaggerating these problems does no one any good,” Lardy warned. “It could even lead to complacency in the face of the very real challenges China poses to the West.”. This is especially true within the United States.”

He predicted that China would proceed to account for a 3rd of worldwide growth and expand its economic footprint. “If U.S. policymakers underestimate this, they will likely overestimate their own ability to advance deepening economic and security ties with Asian partners.”

But views on China have develop into darker amongst U.S. and European leaders. Bill Winters, CEO of Standard Chartered, said in February that the recent contraction on this planet’s second-largest economy was the results of a insecurity as each foreign investors and Chinese consumers were reluctant to place their money into the country.

In addition, Beijing’s raids on local branches of Western corporations operating in China have sent a chill through lots of of U.S. corporations doing business there.

U.S.-China trade tensions have escalated, while Beijing’s privacy law and counterintelligence law have led to a warning from the State Department that U.S. corporations could face risk doing business there.

“The vast majority of companies are trying to figure out how to shorten their supply chain from there to production there – anything that has to do with originating from China, they’re trying to reduce or eliminate as quickly as possible,” he said the recently retired CEO Assets earlier this yr.