Part of China's economic miracle was a mirage. Reality check is next

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global financial crisis hit in 2008-09, it had already met most of its investment needs for its level of development, economists say. Since then, the economy quadrupled in nominal terms while overall debt expanded nine times. To keep growth high, China in the 2010s doubled down on infrastructure and property investment, at the expense of household consumption.

That has kept consumer demand weaker as a portion of GDP than in most other countries and concentrated job creation in the construction and industrial sectors, careers increasingly spurned by young university graduates. The policy focus also bloated China's property sector to a quarter of economic activity and made local governments so reliant on debt that many now struggle to refinance. The pandemic, a demographic downturn and geopolitical tensions have exacerbated all these problems to the point that the economy has found it hard to recover this year even as China reopened.

"We're at a moment when we are seeing some structural shifts, but we should have seen these coming," said Max Zenglein, chief economist at MERICS, a China studies institute. "We're just beginning to be confronted with the reality. We're in untested territory." The end of China's economic boom will likely hurt commodity exporters and export disinflation around the world.

At home, it will threaten living standards for millions of unemployed graduates and many whose wealth is tied up in property, posing social stability risks. CRISIS VS STAGNATION Aside from short-term solutions, which would likely only perpetuate debt-fueled investment, economists see three options for China. One is a swift, painful crisis that writes off debt, curbs excess industrial capacity and deflates the property bubble.