Is China’s Economy in Bad Shape?

Chief Economist Eugenio J. Alemán discusses current economic conditions.

There has been lots of speculation lately regarding China’s economic “decline” or potential economic “perils,” so much so that newspaper articles about the coming demise of China’s miracle economic growth over the previous decades continue to take (our) time away from other, perhaps, more important topics. This has also added to our time spent in trying to make sense of China’s involvement and support of the continued development of an expanded BRICS alternative to a U.S. “driven” global economy.

The flurry of articles on China’s economic demise seems to have hit the Chinese Communist party hard, so hard that even the Chinese Ambassador to the U.S. had to intervene and write an opinion piece in the Washington Post (The Chinese economy is doing better than you might think, by Xie Feng, August 30, 2023). We normally don’t spend a lot of time reading what diplomats have to say because their job is to sell their country and they will say anything to do that. Thus, we are not going to take the time to analyze what the ambassador said in that piece.

Furthermore, we are not going to get into what these economists/analysts are saying about the current problems facing the Chinese economy. At the same time, we remember the heydays when economists argued that Chinese officials were lying with the economic numbers when the economy was, according to the statistics, growing at rates of more than 10% per year. Those reports are also common today, but now the problem has been reversed and the economy is clearly having trouble growing at high rates. One of these signs has been the Chinese government's decision to stop reporting the rate of unemployment for young Chinese, as the rate of unemployment for that segment of the population continued to increase. It is never a good sign when a government decides to not publish a data series because it does not serve its purposes!

However, the biggest issues the Chinese economy has today is that the development model they chose to grow fast has probably run its course and they will have to adapt to the new realities. The development model has followed what economist Arthur Lewis called “unlimited supply of labor,” which meant that the Chinese economy could draw an unlimited supply of labor from its agricultural sector – which has low to negative productivity – into the industrial regions and keep wages relatively low while experiencing a large increase in productivity in the industrial sector.

At the same time, the country pursued a policy of subsidies that benefited several exporting sectors while it also pursued an immense infrastructure effort to integrate different parts of the country. This process was followed by a large push to build new cities and buildings that would accommodate this internal migration.