Has China’s economy outgrown its economic blueprint?

Below is an excellent video from German state broadcaster Deutsche Welle (DW). It outlines the decline in China’s GDP which is now at historic lows. DW look at the problems that have been building in China as for the first time in two decades, its output fell behind that of the rest of Asia. It also addresses the history of economic rise and the mountain of debt that it has accumulated. Add to that the demographic change and international threats. Below are some points from the video:

The draconian measures to contain COVID has sapped domestic consumption crippled small businesses and kept China’s factories closed.

The Chinese government has shielded its economy for years with infrastructure projects – building roads, dams, harbours, rail networks etc. It is the latter that is a good example of excess capacity and mounting financial losses – the network keeps growing even less populated locations where there isn’t much demand and now maintenance costs and interest payments have overtaken the railway’s income.

With the working population declining it is hard to maintain dynamic growth. Less workers puts pressure on wages and for China to maintain its cheap prices it has to improve productivity. Demographic change is a long-term phenomenon so the Chinese government still has room to respond and it has already switched to a three-child policy.

Also the demand for China’s exports has decreased as the global economy goes through an economic slowdown with surging inflation. Exports declines from 36% of GDP in 2006 to 20% in 2021 – see graph. Therefore more domestic consumption is needed to maintain growth and an expansionary fiscal policy like that in western economies might be the way to go.