The real problem with China’s economy

CHINA’S ongoing economic slowdown has elicited a variety of explanations. But forecasts largely have one thing in common: while the short-term data is somewhat volatile – annual growth rates have been distorted by the legacy of the authorities’ draconian zero-Covid policy – most observers expect Chinese gross domestic product (GDP) growth to continue trending downward.

The International Monetary Fund, for example, expects China’s growth to reach just 4.5 per cent in 2024 and fall to 3 per cent by the end of this decade – better than most advanced economies, but a far cry from the double-digit rates of a decade ago. Yet growth is only part of the story.

Of course, the focus on it is understandable. For decades, China has accounted for a significant share of global GDP growth. Moreover, the size of China’s economy – a key determinant of its ability to continue expanding its military capabilities – will shape the evolution of the balance of power with its main rival, the United States.