After decades of booming growth that lifted tens of millions out of poverty, China’s economy seems to be stalling. It barely grew during the second quarter of this year—just 0.7 percent over the previous three months. Even high-tech companies are laying off workers and cutting salaries. In June, youth unemployment hit 17 percent. Retail sales tanked, hitting an 18-month low. And across China, people seem to be feeling it: In a survey last year, only 39 percent of respondents said they were better off than they’d been five years ago.
Meanwhile, foreign investors are dumping Chinese stocks. For the first time since Beijing opened the Chinese market to outside investment in 2014, there’s a net outflow of capital. Now, economists around the world are revising their forecasts for the country’s 2024 GDP growth—in the wrong direction. What’s going on?
Victor Shih is the Ho Miu Lam Chair in China and Pacific Relations at the University of California, San Diego, and the author of Factions and Finance in China: Elite Conflict and Inflation. The Chinese government, Shih says, is facing a complex set of reckonings: The population is shrinking, the housing market has collapsed, and local governments are going broke. At the same time, the Chinese Communist Party’s General Secretary Xi Jinping is having trouble making timely decisions on the economy—having so much power now that he has to make timely decisions in nearly every other policy area, too. The biggest problem, though, is the national debt. It’s gotten so big, Shih says, that Beijing just can’t lift the country of a slump doing the things it used to do …
Michael Bluhm: How do you see the causes of China’s economic problems here?
Owen Winkel
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