HAS THE CHINESE ECONOMY STABILISED?

15.05.2024 Recent survey data suggests that the Chinese economy has stabilised. Below we look at the medium-term outlook.

China’s rapid economic expansion of recent decades has been based on a pre-eminence in low-end manufacturing combined with the building out of housing and infrastructure for a growing population.

                However, due to the One Child policy, the population of China has begun to shrink. This has led to a big over supply of housing and less need for new infrastructure. While the supply chain problems that emerged during the Pandemic have led to a reduced demand for some manufactured products from China.

                It is against these headwinds that the economy has been struggling. However, increased central government spending and an expansion of lending to advanced manufacturing does seem to have helped to stabilise the economy.

                Nevertheless, the Chinese government does need to find a new growth model. The most obvious solution would be policies that promoted consumption over savings. Currently Chinese consumers save around 35% of their disposable income due to poor state provision of pensions and healthcare. This compares to savings rates of around 10% in other advanced economies.

                However, the Chinese authorities remain opposed to the development of a welfare state. Instead its preference is to try to develop high technology and high-end manufacturing. Although this, by definition, does not generate a lot of employment growth.

                So, whilst surveys suggest that the Chinese economy has stabilised the medium-term growth outlook will remain modest until a new growth model emerges. 

For information only. Investors should seek professional advice for their own circumstances before making an investment.

Categorised in: Uncategorised

This post was written by Robin