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China's Economic Downturn: Unveiling the Factors Behind the Struggle



President Xi Jinping's recent acknowledgment of the economic challenges facing China in his New Year message reflects a stark reality: the country is grappling with a downturn that is impacting its citizens' ability to fulfill basic needs. This admission, coupled with fresh data indicating a continued slowdown in various sectors, sheds light on the multifaceted factors contributing to China's economic struggles.

 

One of the pivotal indicators of economic health, the official Purchasing Managers Index (PMI) for manufacturing, nosedived to its lowest level in six months, falling to 49 in December, signifying a contraction in economic activity.


This decline underscores the challenges faced by Chinese businesses, despite government efforts to stimulate the economy. Kelvin Lam of Pantheon Macroeconomics noted that the recent fiscal stimulus has yet to manifest its intended impact due to disruptions caused by harsh winter weather, especially in regions affected by natural disasters.

 

Furthermore, the housing market, a significant driver of China's economy, witnessed a concerning slump. The value of new homes sold by major property companies plummeted by almost 35% year-on-year, with 2023 sales marking a staggering 16.5% decline compared to the previous year. This downturn exacerbates the economic woes as the property industry crisis intensifies.

 

The surge in local government debts and a crisis in the property sector have significantly hindered China's recovery efforts. These challenges have undermined the effectiveness of multiple stimulus packages introduced to revive the economy post-pandemic.

 

Youth unemployment reached a record high of 21.3% in June 2023, a troubling indicator that led Beijing to cease publicizing data on the youth jobless rate. This decision hints at the severity of the issue, suggesting a need for strategic intervention to address the employment crisis, especially among the younger demographic.

 

While China's GDP managed a 5.3% growth in 2023, Goldman Sachs analysts project a slowdown, with growth expected to decelerate to 4.8% in 2024 and further to 4% in 2026. These projections indicate a departure from China's robust growth history and a notable contrast to the growth trajectories of other emerging economies like India.

 

President Xi reiterated the government's commitment to enhancing citizens' quality of life, emphasizing the importance of education, career opportunities for the youth, and access to healthcare for the elderly. However, bridging the gap between rhetoric and reality amid an economic downturn remains a pressing challenge for the Chinese leadership.

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