The 9.9% erosion: China’s struggling economy
From multiple and significant angles, China’s economy is under heavy strain. In particular, the nation experienced rare civil unrest due to its strict zero-COVID policy, which locked down vast sections of the economy, lowered industrial output and curbed consumer spending.
Some important metrics offer evidence of an economic contraction. For example, the country’s exports dropped 9.9% from the previous year in December 2022
You could take the export drop with a grain of salt, though. Steep inflation in the U.S., Europe and elsewhere has moved consumers to tighten their belts. So far, there’s no evidence to support another nation taking China’s place as a dominant source of cheap goods.
That noted, the nation’s debt has risen rapidly over the past decade, particularly among state-owned enterprises and local governments. That could hinder China's ability to limit future economic shocks. What’s more, ongoing trade tensions with the U.S. and other countries have added to the uncertainty.
But again, shoppers at Walmart and Target love low-priced wares and aren’t about to go on a long-term spending fast. (Nor will smartphone makers be moving out of China anytime soon.) The International Monetary Fund, meanwhile, expects China’s economy to grow 5.2%, an increase from its October forecast of 4.4%.
Still, China’s economic headwinds could lead to major impacts. Any slowdown in the Chinese economy might create new price pressures in the U.S. if its export prices rise — and hurt the demand for U.S. products.
The 800 million population puzzle: aging out
As for its population, China suffers from a disadvantage in its demographics.
China’s population is getting older — fast. As its people age and retire, fewer working-age individuals are around to support them. The United Nations forecasts the nation’s population — now roughly 1.4 billion — to fall below 800 million by the year 2100.
The nation’s one-child policy, in place for more than three decades before it ended in 2016, exacerbated the problem and today threatens long-term economic prospects. Citing steep drops in birth rates, China in 2021 began to let couples have up to three children. Will it increase the workforce? Right now, it’s impossible to say.
Is 20.4% too much? Trade’s share of GDP
China's economy relies heavily on international trade; exports accounted for around 20% of its gross domestic product in 2021, according to the World Bank.
But trade dependence makes China vulnerable to global economic fluctuations and trade policy shifts. The COVID-19 pandemic exposed that reliance when demand for Chinese products dropped.
China is actively seeking to shift towards domestic consumption to drive growth. Its electric car manufacturers such as Nio and Xpeng have shown promise in leading the way. But a larger domestic shift overall will take time and require significant changes in China's economic structure and policies.
