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Currently, the worst-case scenarios primarily advocated by some foreign media and think tanks regarding China’s severe economic situation are being put forward. While it may be difficult to say that these scenarios are likely to occur, China should consider preparations for potential situations through careful analysis and research.
According to recent reports from media outlets, including Jingji Ribao (Economic Daily), Chinese economic authorities do not seem to view their current domestic economy as particularly severe. Instead, they are confident in maintaining the momentum of last year’s 5.2% growth and accepting a report card of around 5% growth this year.
However, reality can be harsh. It’s undeniable that the situation is quite severe. Above all, it is estimated that a whopping 55 trillion yuan ($8.6 trillion) of currency has evaporated in the past two years, yet there is no circulation of money in the market. No further explanation is needed if the once-popular term “financial sclerosis” is being used. The current financial situation of Chinese people is generally worse than before. There are even self-deprecating voices saying that the market is empty.
The reality of deflation, where prices have been falling for four consecutive months until last month, should also be noted. Given the current situation, there’s a high possibility that it will achieve a record for five straight months. Especially since the prices of pork, a staple food for the Chinese, followed by beef, are falling, this could very well be possible.
It is not trivial at all that the situation of domestic consumption won’t recover. If you add the wave of company bankruptcies across the country and phenomena such as wage defaults, it’s surprising that the Chinese economy is still holding up. It is reasonable to state that international media, including Bloomberg, confidently predict that achieving a 5% growth rate this year is implausible even in the unlikely event of a sudden recovery in the Chinese economy.
The Japan Center for Economic Research has even brought up a more alarming scenario, intensifying speculation about the Chinese economic crisis. Its detail is dreadful. If the current situation continues, the growth rate will be stuck at 1% annually, eventually leading to a financial crisis in 2027. This is an exceptionally unfavorable scenario for China, although the likelihood of it materializing does not appear to be very high.
However, good medicine is often bitter. The same can be said for harsh criticisms. If China does not ignore these warnings, it can prepare measures in case of the worst situation. Considering that there isn’t much time until 2027, it seems genuinely necessary to take such precautions.
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