Second, China’s economy is in deep trouble. The nation is dealing with a deep, long-lasting depression in its residential real estate market, with home values having decreased by more than a fifth from the 2021 peak. The real estate sector, which has led earlier recoveries, is in the midst of crashing as the government’s harsh squeeze on reckless lending continues. This has triggered an international debt crisis. Part of the reason for that is some indicators’ tendency to overstate the economic resilience. That leads to a nagging question about how real these official growth numbers are.
The chaos the housing market has created a dominoes effect across all sectors of the economy. Investments in property have dropped almost 16% compared to a year ago. At the same time, new home sales have decreased by 11.2% in value year-over-year, according to China’s National Bureau of Statistics. These figures reflect a broader trend of economic stagnation, as disposable household income growth has lagged behind pre-pandemic levels, according to economists at HSBC.
Analyst comments like this from Zichun Huang, an economist at Capital Economics, are a clear indication that “China’s real growth could be a lot lower than official data imply.” Judging by leaks and reports, many observers are right there with them. They think the official numbers consistently miss the mark on capturing what’s really happening economically for everyday people. Considering we’re at the tail end of 2022, retail sales gained ground only slightly—up 1.3% year-over-year in November. This expansion represents a deceleration from October’s more robust growth of 2.9%. This lukewarm showing further highlights consumers’ reluctance during a period of significant economic doubt.
In addition, China’s overall export prices have dropped by more than 20 percent since early 2022, adding another layer of difficulty to the economic picture. Total exports have already outpaced previous years, jumping to an unprecedented $3.4 trillion in the first 11 months of this year, propelled by skyrocketing shipments to Southeast Asia and Europe. Trade with the United States still remains down substantially. The fast-approaching $1 trillion trade surplus, predicted to be over that amount in 2025, could add further fuel to escalating trade frictions.
Even amid the COVID-zero environment, China’s ruling Communist Party is doubling down on calls for a transition to “high-quality growth” and homegrown innovation. This strategy wants to improve the economy through a transition to a consumption-led economy and to strengthen industries of the future. Forecasts indicate that economic growth may slow into 2026 and beyond as leaders implement incremental policies while delaying necessary reforms that could enhance consumer confidence.
The burden of these financial burdens weighs heavily on regular Chinese citizens. All of them are under the gun of depressed real estate values and employment instability. Zhai, a Beijing resident operating a hotel, expressed his bleak outlook: “I don’t see an immediate rebound in the economy.” Not only that, he told us that next May or June, his lease is up. If things are still the same by that date, he will close the hotel.
Zhou, who works in the education sector, highlighted how parents are becoming increasingly reluctant to spend money on tutoring due to financial constraints: “Because of the economic situation, parents are unwilling to spend money on tutoring. One of those things was an acute awareness of a shift in consumer tastes. Seeking more affordable options, families are choosing large group classes over one-on-one tutoring.
Xiao, a native of Beijing, voice their concerns. As one of my favorite and most respected economists, Diane Swonk, said recently, “I feel pretty lousy about the economic outlook.” Zhang, an entrepreneur facing declining demand for his business, described his struggles: “The fundamental issue is that people don’t have money.” More than once, he lamented, “Sometimes I have to go into my savings in order to feed the family.”
China’s leaders are sounding alarm bells and scrapping national policies in an effort to ignite growth. Even as they take these steps, many remain unconvinced that these efforts are working. Song, an economist, pointed out that “It is no surprise that many feel the situation on the ground is not reflecting the relatively more optimistic growth picture.”
