China’s Economy: A Recurring Pattern of Defeat

If China’s economic prospects were not so ugly and dispiriting, the story would be boring. Like a series of B-movie sequels, the pattern has repeated since 2021, when the failure of the huge developer Evergrande inaugurated China’s long-lasting property crisis.
At each step, the economy has given off signs of weakness. Beijing has either ignored the problems or put forward inadequate or ill-conceived policies. These have failed as remedies, and the economy has given off still more signs of weakness, which has elicited different but still ineffective remedies followed by more signs of economic weakness.
It is getting hard to believe the pattern will ever break and save the poor Chinese wage earners and businesses that must cope with the mess.
The latest news from China confirms that the pattern persists. Through spring and early summer, Chinese authorities held a series of grand meetings of the sort that the Chinese Communist Party (CCP) seems to love. Each such meeting has announced new policies that are supposed to help China regain its economic momentum. Yet, as economic measures have rolled in, the message has been clear. The announced policies have failed to address the problems confronting Chinese economics, and the country still suffers from a loss of dynamism and growth prospects.
Thus, while all the CCP meetings confirmed Beijing’s already reduced 5 percent real growth target for 2024, every statistical and anecdotal measure says the economy is underperforming. According to Beijing’s National Bureau of Statistics, China’s real gross domestic product for the spring quarter was 4.7 percent above year-ago levels. Unemployment ticked up in July to 5.2 percent of the nation’s workforce from 5.0 percent earlier in the year.
Each major sector of China’s economy shows weakness in its own right. The greatest problem lies with housing. According to the latest reports, home sales by value fell almost 26 percent in July from year-ago levels. Most telling is how property prices have continued to decline, by 5.3 percent in July from year-ago levels, worse than the 4.9 percent recorded for June. This carnage has occurred despite Beijing’s recent effort to buy unoccupied apartments for more than 500 billion yuan (about $70 billion).
The drop in property values has hit consumption levels. For most Chinese, the value of their home constitutes the bulk of their household wealth. So, with real estate values in decline, Chinese people have felt even poorer and have governed their spending levels accordingly. In so doing, they have imposed a drag on the overall economy.
Beijing has tried to boost consumer spending with a program to buy up older household appliances and cars and thereby spur new sales, but it seems to have had little response. As of July, retail sales were only 2.7 percent above year-ago levels, well below the target for the overall economy and slower than the growth rates of earlier in the year and late last year.
Not too long ago, CCP leader Xi Jinping unnerved business owners by castigating them for following profits instead of the CCP agenda. Now that China needs help from private businesses, Xi has changed his tune and has begun to praise business owners as “our own people.” His earlier remarks, however, have planted a seed of fear in these business owners that he might change his tune back to his old way of thinking. That fear has received a fillip of late because the authorities have announced plans to give themselves a big role in how private businesses spend. Needless to say, private businesses have hesitated to put more at risk.
Last year, Beijing launched an investment program in high technology, especially electric vehicle batteries, computer chips, and green energy. In part, Beijing did so to make up for the deficiencies in homebuying, consumer spending, and capital spending by private businesses. All that effort has done is create excess capacity in the targeted areas and distorted the Chinese economy to produce in areas that neither the Chinese nor the rest of the world wants from China. Nothing in this picture—either the state-backed programs or the results—is pretty. The pattern seems set to replicate itself going into the future, as it has for some time now.