People in China are so discouraged about the economic outlook that many have taken to social media to call it the “garbage time of history,” referring to the end of NBA games when the result is settled and players go through the motions until time runs out.
Use of the phrase earned rebukes from state-run media over the summer, but it tapped into a deepening gloom that has spread to Wall Street as fresh data point to worsening weakness in top economic drivers. Bank of America recently cut its 2024 growth forecast to 4.8% from 5% and sees further slowing in the next two years to 4.5%.
In an article for the China Leadership Monitor last weekend, Rhodium Group partner Logan Wright said that while China is still growing faster many other countries, its global influence probably peaked in 2021.
That’s when it reached 18.3% of world GDP, before dipping to 16.9% in 2023. Meanwhile, the U.S. share is sitting at about 25%.
The problem isn’t just cyclical. Wright said “the primary reason that China’s economic slowdown is structural in nature is one that Beijing acknowledges: the credit and investment-led growth model has reached a dead end.”
All that capital fed massive property construction and infrastructure development. But noting has replaced them as growth drivers, and China’s teetering financial system is unlikely to give rise to any new ones, he wrote.
Credit expansion will slow, dragging down investment growth and the economy’s long-term prospects, he said. Meanwhile, the political leadership’s fear of letting defaults, bankruptcies and unemployment rise is preventing the financial system from channeling capital to more productive sectors of the economy.
“The financial system itself is now constraining China’s economic growth rather than facilitating it,” Wright explained. “In addition to demographics and the changing external environment, financial constraints are the primary reason why China’s economic slowdown is structural in nature and why China’s economy is likely to grow at rates below potential over the next decade.”
To be sure, Beijing has known its old growth model couldn’t last and has promoted advanced manufacturing in emerging sectors like EVs and green energy as alternatives. But those aren’t big enough to offset declining property or infrastructure construction, he said.
China’s leadership has also identified the need to rebalance the economy toward more consumption instead…
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