A More Nuanced Economic Assessment
Whether t he Chinese economy has peaked is becoming a hotly contested topic in the West. The cover story of the May 12-19 edition of The Economist is titled Peak China and claims a shrinking labor force, accelerating aging and intensified geopolitical tensions will drag down China’s economic growth. On July 31, Newsweek’s online edition featured a debate on the topic, with one columnist saying China will be the world’s biggest economic miracle again and the other asserting China’s glory days are over. Western politicians are also talking down the Chinese economy. U.S. President Joe Biden, for one, has recently said China’s growth is slowing due to a weak global economy as well as Chinese policies.
Doomsday predictions are not new, and these latest ones are just a recycling of the oft-used narrative about China’s economic collapse, which surfaced in the wake of the 2008 global financial crisis and also during the COVID-19 pandemic.
Indeed, China’s growth has been fluctuating in recent years, sometimes sharply. This is largely a result of the pandemic. The Chinese Government adopted stringent measures to protect people’s lives and health, including suspension of business activities. While contributing to a low death toll, lockdowns weighed down the country’s economy.
The U.S. trade war against China and deglobalization around the world are also holding back China’s economic recovery in the post-pandemic era. Due to monetary tightening in the U.S., emerging markets and other developing countries are experiencing currency depreciation, capital outflows and mounting debt risks. The sluggish global trade has led to a decline in Chinese exports.
Consumer spending is also being restrained by lower expectations on future incomes. As a result, the Chinese economy nd has failed to bounce back at the speed with which it did after the 2008 global financial crisis.
It is, however, unreasonable to take these factors as evidence the Chinese economy has peaked. The growth rate is an important, but not the only, measure for economic health. Short-term fluctuations often don’t reflect the overall picture and long-term trend of an economy.
As a developing economy, China enjoys many advantages in technological innovation and industrial upgrading as a latecomer. Meanwhile, new economic driving forces like big data and artificial intelligence (AI) are equally fresh to China and the developed world —both are standing at the same starting line.
A shrinking work force will not necessarily result in economic recession. China’s labor force can sustain its current economic and social development, while in the long run, AI is likely to reduce the demand for labor. That’s why the Chinese Government is committed to high-quality development, which is characterized by innovation, coordination, environmental friendliness, openness and sharing.
Major economic indicators show China’s economy is performing well. The government debt to GDP ratio, at 45 percent, is far below the upper limit of 60 percent recommended by the Maastricht Treaty, or the Treaty on European Union. Commercial banks’ nonperforming asset ratio stands at 1.7 percent, lower than the regulatory standard of 5 percent. In August, the valueadded industrial output went up 4.5 percent year on year, 0.8 percentage points higher than the previous month. The service production index rose 6.8 percent year on year, up 1.1 percentage points over the previous month. Retail sales, a key measurement of consumer spending, grew 4.6 percent, up 2.1 percentage points.
Meanwhile, the Chinese Government has well-placed priorities. For instance, it is ramping up support to micro and small enterprises and accelerating the cultivation of strategic emerging industries as well as the transformation and upgrading of traditional industries. It is also trying to help increase people’s incomes while working to improve public services together with social security. The Chinese economy will surmount the difficulties facing it, disproving the theory that it has peaked.