The 9.9% erosion: China’s struggling economy
From multiple and significant angles, China’s economy is under heavy strain. In particular, the nation has experienced rare civil unrest due to its strict zero-COVID-19 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. The country’s exports dropped 9.9% in December 2022, while a slowdown in growth also weighs on the country’s outlook. That latter, experts say, stemmed from the nation’s excessive investment in metals like steel and aluminum.
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 will create new price pressures in the U.S. if its export prices rise — and hurt the demand for U.S. products.
Read more: Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead. Get in now for strong long-term tailwinds
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 1.42 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 more than 20.4% of its nearly $18 trillion gross domestic product in 2021, according to the World Bank. That makes China the world's largest exporter.
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.
It might be a stretch, but you could liken China’s future to the recent controversy over its balloons. Will Zeihan’s theories be definitively shot down? Or will China’s trajectory drift off course? Either way, all eyes are on the horizon.
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