China’s $18.9 Trillion Economy Struggles with Debt, Deflation, De-risking, and Demographics

China achieved a 5.2 percent rise in gross domestic product (GDP) last year. Still, it indicates that it needs to fend off the 4D’s of an economic disaster – debt, deflation, de-risking, and demographics.

The South China Morning Post (SCMP) reported on the 21st that China has yet to convince the market that all is well in the world’s second-largest economy, according to observers. And the race is on as policymakers grapple with the ramifications of four “D’s” that continue to slow down the 126 trillion yuan (approximately $18.9 trillion) economy.

As of the end of November last year, China’s local government debt was 40.6 trillion yuan (about $6.1 trillion), an increase of 16% from the previous year. According to a JP Morgan report, about 50 Chinese real estate developers have failed to repay overseas bonds worth $100 billion over the past two years.

In addition, China’s Consumer Price Index (CPI) fell by 0.3% last month compared to the same month the previous year, showing a decline for three consecutive months, and the Producer Price Index (PPI) recorded a negative for 15 straight months, falling 2.7% compared to the same period last year.

The paper pointed out that fears are intensifying that China may slip into a Japan-like spiral of stagnation. China’s population has been decreasing for two years, which is also a big challenge facing the Chinese economy. The National Bureau of Statistics of China announced on the 17th that the population of China as of the end of last year was 1.4967 billion, down 2.08 million from the end of 2022. The number of newborns also fell below 10 million for two years, with 9.02 million. The rapid aging process amid a decrease in birth rates is expected to have far-reaching implications for the labor supply, consumption, social security benefits, and economic growth prospects for years to come.

A Citigroup analyst suggested that the contributions of three new powerhouses – technological innovation, advanced manufacturing, and modernized infrastructure – could approximate that of the property sector. However, he warned that for the pivot to a new growth model, both the supply and demand sides would have to contend with “throes of a deep, profound change and transition.” The paper pointed out that the delay of the 3rd Plenary Session of the 20th Central Committee of the Communist Party, an occasion for the Communist Party leadership to address the nation’s long-term economic issues, also raised concerns about China’s policy direction. The Communist Party of China did not hold the 3rd Plenary Session last year, marking the first time since 1984 that the 3rd Plenary Session was not held the year after the National Congress of the Communist Party.

The paper pointed out that the delay of the 3rd Plenary Session of the 20th Central Committee of the Communist Party, an occasion for the Communist Party leadership to address the nation’s long-term economic issues, also raised concerns about China’s policy direction. The Communist Party of China did not hold the 3rd Plenary Session last year, marking the first time since 1984 that the 3rd Plenary Session was not held the year after the National Congress of the Communist Party.