Why China’s economy won’t be fixed
world economy in 1978, it became the most spectacular growth story in history. Farm reform, industrialisation and rising incomes lifted nearly 800m people out of extreme poverty. Having produced just a tenth as much as America in 1980, China’s economy is now about three-quarters the size.
Yet instead of roaring back after the government abandoned its “zero-covid" policy at the end of 2022, it is lurching from one ditch to the next. The economy grew at an annualised rate of just 3.2% in the second quarter, a disappointment that looks even worse given that, by one prominent estimate, America’s may be growing at almost 6%. House prices have fallen and property developers, who tend to sell houses before they are built, have hit the wall, scaring off buyers.
Consumer spending, business investment and exports have all fallen short. And whereas much of the world battles inflation that is too high, China is suffering from the opposite problem: consumer prices fell in the year to July. Some analysts warn that China may enter a deflationary trap like Japan’s in the 1990s .
Yet in some ways Japanification is too mild a diagnosis of China’s ills. A chronic shortfall in growth would be worse in China because its people are poorer. Japan’s living standards were about 60% of America’s by 1990; China’s today are less than 20%.
And, unlike Japan, China is also suffering from something more profound than weak demand and heavy debt. Many of its challenges stem from broader failures of its economic policymaking—which are getting worse as President Xi Jinping centralises power. A decade or so ago China’s technocrats were seen almost as savants.
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