China's geo-economic pivot

Amid economic troubles, China's changing geopolitical outlook opens the door for renewed engagement with India

- SHYAM SARAN

It may appear strange that a 5.2 per cent gross domestic product (GDP) growth rate in an economy as large as China (now estimated at $17.52 trillion) recorded in 2023 is considered evidence of a significant slowdown. And this growth has been achieved with zero inflation at a time when the challenge for most other advanced and emerging economies has been persistent inflation. It is true that China's exports and imports fell by 4.6 per cent and 5.5 per cent year-on-year in 2023, but the country remains the world's largest trading power, constituting about 15 per cent of world trade. It is a world leader in electric vehicles. Nearly 60 per cent of the manufacturing for solar and wind energy, as well as storage batteries, critical to the transition away from fossil fuels, is located in China. The country is one of the leaders in artificial intelligence (AI) research and application, just behind the US. Therefore, is not talk of a "China peak" or secular economic stagnation —“Japanification”— premature?

The Chinese economy is facing both short-term and long-term headwinds. The source of the greatest economic vulnerability is the property crisis, which continues to expand, with ripple effects throughout the domestic and even external economy. Having constituted 30 per cent of total economic activity and a significant part of household wealth, de-leveraging in this sector is impacting overall financial stability. According to a recent study, 70 per cent of family assets in China are held in property. Housing sales are down by 40 per cent since 2021, and the real estate sector overall has shrunk by 9.6 per cent. Two-thirds of property developers have missed bond payments and the largest of these, Evergrande, has been ordered to liquidate by a court in Hong Kong where it was listed. There is a real danger of a domino effect, with contagion spreading to other major developers.