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China’s giant downshift (Axios)

Axios Markets title: China’s giant downshift
By: Matt Phillips
Date: 18 January 2023

China’s economy posted its second-slowest year of economic growth since 1976, another indication the post-COVID world economy could be vastly different from the decades that preceded the pandemic, Matt writes

Why it matters: Since it burst onto the world economic stage in the early 1990s, China’s economy has been a central driver of business decisions in virtually every part of the world economy, including Australian and Brazilian miners; oil producers in the Gulf; British and American bankers; Argentinian farmers; and German automakers. 

Driving the news: New numbers from China’s National Bureau of Statistics showed its economy expanded by just 3% for the full year, down from 8.1% in 2021.

What they’re saying: “It is very surprising in our view that the reported numbers for December were not worse, given the large Covid wave in the month,” Goldman Sachs economic analysts wrote in a note to clients. 

Context: Analysts tie the country’s recent economic ills to its harsh “Zero COVID” lockdown policies, which wreaked havoc last year. 

Yes, but: China’s economic problems go beyond the virus. 

  • Years of a speculative frenzy in housing have caught up with the country. Home prices are now deflating, and major homebuilders appear dangerously over-indebted. 
  • The government’s sudden confrontation with its formerly high-flying tech sector spooked global investors, prompting foreign investors to pull capital from the country. 
  • The impact of the virus, as well as growing political tensions with major trading partners such as the U.S., are driving diversification away from Chinese supply chains. 

What’s next: Now, a long-predicted demographic downturn in the country has also arrived. 

  • Numbers released by China on Tuesday showed its population shrank for the first time since the 1960s, as deaths outpaced births.
  • While birthrates have long been slowing in China — a typical phenomenon as countries become more affluent — it marks a major tipping point. 

The bottom line: The combination of geopolitical tensions, domestic disarray and demographic decline mean it’s all but impossible that China’s economy regains its previous vigor. 

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Source:
https://www.axios.com/newsletters/axios-markets-f73561ca-bf3a-4670-a2ed-685c1397a556.html

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