On March 11, China’s monthly political gatherings in Beijing came to an end. They were conducted under a lot of stress, with a poor business and large aspirations from both domestic and international observers regarding what the state can do to help the country recover from the woods.
The country’s officials did never rebuffed to mention every single issue that China is facing with its economy. They also made an effort to raise the confidence of the Chinese people by laying out how the nation would move forward in the upcoming chapter, primarily through its efforts to lead technology globally.
The government used the meetings to announce its 5 % GDP growth goal for 2024. This is less than the 5.2 % growth rate that was attained in 2023 but higher than the 4.6 % forecast from the International Monetary Fund. Although the Chinese government did not specify how this goal would be achieved, the goal itself speaks to the government’s optimism in the near future.
Over the past four decades, China’s rapid economic growth has been attributed to business opportunities, low employment, infrastructure investment, imports and foreign direct investment. But at the time of reading, none of these owners are working properly.
Business activities are intertwined with greater status treatment. The labor offer has been hampered by a declining people. Foreign investment has also been pushed out of China by the uncertainty surrounding the country’s economy and growing political conflicts. Inward foreign direct investment in China was less than 10 % of the US$ 344 billion it received in 2021 by January 2024.
Home problems
The country’s ailing real estate sector is responsible for many of the risks facing its business. For years, China’s economy was centered on a flourishing home market driven by theoretical investment returns. But, this growth was mostly driven by debts. Designers also started selling homes before they had been built to maximize their profits.
China’s market started to slow and, in 2020, Chinese officials cracked down on irresponsible borrowing. Property developers were subject to common banking restrictions by Beijing, which meant they were unable to take out additional funds to pay off their existing debts.
A crises followed. In early 2024, Evergrande – the country’s most greatly indebted real estate developer – went bust. Additionally, another significant house developers face problems. Vanke is having trouble finding the new money it needs to stay dead because Country Garden has defaulted.
In its annual meeting, the state publicly confirmed its intention to devalue the housing bubble. Instead of highlighting how to prevent default, it just made reference to providing some assistance to developers who want to finish property projects.
The real estate crisis is closely related to the current poor customer demand in China’s economy. House values are significantly lower than they were two years ago, which raises questions about the potential value of one’s personal success. In response to poor social security, this has resulted in more prudent saving and less consumption, which has resulted in a general decline in the cost of goods and services.
Due to trade regulations imposed by the US and the EU, political issues, and global supply chains ‘ shocks, demand for Chinese products has even decreased. This explains why the government made a clear point during its annual meetings about how important it is to improve the Taiwanese economy’s self-reliance.
New growth owners
” New quality productive forces” was the most eye-catching expression to appear at the annual meetings. Although there are a variety of ways to interpret the word, innovation and technology are all at the forefront.
Chinese officials made it clear that China should work harder to create more products involving artificial intelligence ( AI ). Programs like AI-powered travel agencies and marketers are being considered by the state.
China has, up to this point, been much known for applying Artificial technology. Beijing, Shanghai and Shenzhen are all smart cities, where innovative solutions such as AI, sky technology and great information are used in numerous places including transport, urban planning and public safety.
However, some new challenges will arise when China’s economy is transformed from one that is driven by investment and debt to one that is driven by innovation and technology.
First, innovation requires institutional guarantees and incentives to reward risk-taking. Hence, the private sector needs to grow faster. Research has found that the share of China’s private sector among the 100 largest listed companies in China dropped to 36.8 % at the end of 2023 from 55.4 % in mid- 2021.
Second, innovation requires more highly skilled human capital. According to an OECD report from 2021, the use of AI technology increases the need for skilled workers despite replacing low-skilled workers. This will pose a challenge for China as, up to this point, the country’s growth has been spurred by low- skilled labour.
Third, high- tech industries such as AI and digital services are energy intensive. China has already taken steps to diversify its energy supply, but securing energy supply chains will be crucial in the long run.
In the future, increased geopolitical tensions and revamped global supply chains may result in a decline in exports of energy and other natural resources to China. Many of these resources are from developing nations that have previously exchanged their resources for Chinese infrastructure investments. This is unlikely to occur in the near future.
At SOAS, University of London, Hong Bo is a professor of financial economics.
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