China at a Crossroads: Can It Avoid Prolonged Stagnation?

📌 After decades of unstoppable growth, China is now facing one of its deepest economic crises, with a 2024 growth target of 5% that seems increasingly out of reach. Consumer spending is down, the real estate market is unstable, and tensions with the United States, limiting China’s access to advanced technologies like semiconductors, are hindering innovation and high-value-added production.

📌 The real estate sector, traditionally a key driver of China’s growth, is at the center of this crisis. After attempting to curb developers’ debt, the government triggered a market contraction, leading to the default of many companies and a decline in housing prices. This has eroded trust in the real estate market, once considered a safe investment and a source of wealth. The crisis has wiped out approximately $18 trillion in household wealth, driving consumers to save rather than spend. Youth unemployment hit record levels in August, further worsening the situation.

📌Despite government efforts to revive the real estate sector and restore consumer confidence, progress remains slow, and a recovery in household spending seems distant. Among the measures taken, in September the government cut interest rates, increased liquidity to incentivize lending, and promised funds to support the stock market. Bloomberg forecasts that these measures could boost growth by up to 1.1% over the next four quarters, but many analysts remain skeptical about their long-term effectiveness.
The risk is that China may enter a prolonged period of weak growth, like Japan’s “Lost Decade” in the 1990s, with global impacts due to the strong economic ties. According to the International Monetary Fund, China will remain the main contributor to global growth until 2028, accounting for 22.6%, more than double that of the United States. However, Beijing is at a crossroads, and its next decisions will be crucial not only for the country’s economic future but also for global economic stability.s.