What China's Slowdown Means for Us All

Summary

China's decades-long economic boom has stalled, with growth slowing, unemployment rising, and incomes falling. This reversal is largely driven by COVID-related shutdowns, tensions with the US and allies, and a property market crisis. As Chinese consumers and companies pull back, multinationals that relied on China's growth are impacted. The downturn complicates matters for President Xi politically. If China cuts back further on buying US debt, it could raise borrowing costs for Washington. For now, ordinary Chinese are bearing the brunt of the slowdown.

Takeaways

• 😲 China had unprecedented economic growth for decades, becoming the world's factory floor and second largest economy.
• 📉 But now China is experiencing a major slowdown due to factors like the property crisis, COVID policies, geopolitics, and debt issues.
• 👎 This slowdown is having widespread negative impacts in China - falling incomes, job losses, poor graduate prospects.
• 🌎 The slowdown also reduces China's international spending and investment, hurting multinationals and countries worldwide.
• 🏙 The property crisis and debt issues have shattered confidence in China's economy, causing stock market crashes.
• 🔻 Declining prosperity risks sparking political backlash against the Communist Party and Xi Jinping.
• 🛑 The boom story that drove China's global ascendancy over 30 years has come to an abrupt halt.
• �Ph The slowdown makes it harder for China to wield as much influence abroad or take over global leadership.
• 🎒 Multinationals that depended heavily on the China market will now struggle with weaker growth prospects.
• 💰 If China cuts back further on buying US debt, it could become more expensive for the US government to borrow.

Q & A

What was driving China's massive economic growth over the past few decades?

China's economy grew rapidly due to its rise as the world's factory floor and a massive manufacturing powerhouse. Tonnes of expansion, businesses moving production to China, and double-digit GDP growth drove economic boom.

How did the pandemic impact China's economy?

China's strict zero-COVID policy led local governments to spend heavily on containment measures, resulting in shutdowns of businesses, factories and cities over just a handful of cases. This severely impacted economic activity.

What is the current situation with China's property market?

There is an ongoing crisis in China's property market due to years of debt-fueled expansion. The government has cracked down on reckless spending, but this has shattered confidence and weakened the housing market.

How have geopolitical tensions impacted China's economy?

Tensions especially with the US have led to reduced foreign direct investment in China. US tariffs and export controls on key technologies have also taken an economic toll.

What changes are ordinary Chinese citizens witnessing?

Many Chinese workers have seen salaries and job opportunities decline. Youth unemployment has surged but exact figures were temporarily hidden. Overall spending power has reduced.

How will the slowdown impact Chinese companies and international businesses?

Chinese consumer spending will reduce, hurting international brands that rely on China for growth. Tourism and overseas investment may also decline as government and businesses tighten belts.

What are the implications for the Chinese government?

The slowdown threatens President Xi's vision of prosperity used to justify Communist Party control. It may limit his options for asserting China's influence overseas as well.

How could China's economic troubles impact the US?

China investing less in US debt/treasuries could raise US borrowing costs. Reduced tourism spending in US is also probable. Overall US economic growth may be impacted.

Why did China stop publishing youth unemployment data?

To hide the actual depth of the jobs crisis facing young graduates and prevent social instability due to their discontent.

Will China's slowdown lead to political changes within the country?

Possibly, if public dissatisfaction grows with slower income growth and standards of living. However the Communist Party retains firm control of power currently.

Outlines

00:00

😞 China's Economic Slowdown and Its Global Impact

Paragraph 1 discusses China's rapid economic growth over the past few decades and how it has recently slowed down significantly, characterized by a property crisis, deflation, stock market losses, and rising unemployment. This slowdown in spending by Chinese consumers and businesses is negatively impacting major multinational companies around the world that have come to rely on China's massive growth story, presenting challenges for the global economy.

05:07

😫 Ordinary Chinese Citizens Bearing the Brunt of the Slowdown

Paragraph 2 details how ordinary Chinese citizens are being impacted by the economic slowdown, with falling incomes, salary cuts, and youth unemployment. It gives examples of specific Chinese citizens who have lost jobs or seen significant income drops. This change in consumer attitudes and tighter budgets in China will make it harder for foreign companies to find growth opportunities there going forward.

Keywords

💡Economic growth

Refers to the increase in China's GDP and prosperity over the past few decades. China's economy grew at an unprecedented rate, transforming the country into an economic powerhouse and factory for the world. This fueled rising incomes and a burgeoning middle class. However, this rapid growth has now stalled, leading to economic troubles.

💡Property crisis

Refers to the issues facing China's real estate and construction sectors. Heavy borrowing by developers and overbuilding has led to a debt crisis and plunge in property prices. This has weakened the economy and caused problems in related industries.

💡Deflation

A general decline in prices over time. China is experiencing deflation due to the economic slowdown, with falling demand and profits. This deflationary pressure is the deepest China has faced since the 1998 Asian Financial Crisis.

💡Unemployment

With the economic troubles, unemployment rates have risen in China, especially among young people and recent graduates. This increases financial distress and reduces consumer spending power, further slowing the economy.

💡Global economy

The interconnected global economic system. A slowing China now buys fewer imported goods. This reduces growth and sales for multinational companies around the world that have benefited from China's boom.

💡Manufacturing powerhouse

Describes how China became the world's largest manufacturing hub and factory, producing a huge range of products from textiles to technology. However, geopolitics and shifting policies have now reduced foreign investment in Chinese manufacturing.

💡Middle class

Refers to the hundreds of millions of Chinese people who were lifted out of poverty during the boom years and became relatively affluent consumers. The slowing economy now squeezes their incomes and reduces spending power.

💡Covid zero policy

China's strict policy of frequently locking down cities and conducting mass testing in response even to small outbreaks of Covid. This has been economically disruptive and curtailed business activity.

💡Geopolitics

International political factors like tensions between China and other nations, especially the US. These frictions have led to less foreign investment and trade, weighing on China's economy.

💡Political reality

The economic troubles may lead to political instability or reactions against the ruling Communist Party. With lower growth, there is less public tolerance for the party's authoritarian controls.

Highlights

China's economic growth was unprecedented, but now seeing significant slowdown

Property crisis caused deflationary pressures and $6 trillion stock market loss

Slowdown means less spending globally - fewer goods sold by companies like Apple

Understand impact by grasping how bad things are in China after decades of growth

Pandemic, geopolitics, lack of foreign investment exacerbated economic problems

Property crisis from debt buildup and crackdown created confidence crisis

1 in 3 workers reported falling salaries in 2023, highest in 6 years

Youth unemployment spiked, prompting China to stop publishing the data

Slowdown complicates things for President Xi Jinping seeking more power

Less spending outside China, reduced tourism and foreign investment

Slowdown means less money for China to invest in US treasuries

China was the world's factory floor with massive GDP growth

Hundreds of millions lifted out of poverty into burgeoning middle class

Slowdown shifts political attitudes and public acceptance of party control

Ordinary Chinese bearing the brunt of the economic slowdown

Transcripts

China's economic growth was like nothing

the world has ever experienced before

but now it's seeing a significant

slowdown there's the property crisis and

all of the followed from there we not

expecting any um meaningful recovery um

in Chinese property Market in

20124 you're seeing deflationary

pressures play out in China right now

this is the deepest and longest

deflation in China since 1998 Asian

financial crisis the stock market has

lost some $6 trillion dollar in value

just over the last year and a half

you're seeing rises in unemployment

particularly among the country's youth

the challenge for the rest of the world

is that this slowdown means China is now

cutting back on spending that means

Louis Vuitton sells fewer handbags Apple

sells fewer iPhones and Chinese funding

on rail in Africa and ports in Europe

dries up everybody from Big

multinational companies to ordinary

people have been swept up in China's

Boom story that's now coming to an end

in short it's bad for the global economy

the question is how

bad before we can understand the impact

of all of this we need to get the grips

with how bad things are in China because

for most of theast last two decades the

country's growth has been

Unstoppable this is an economy that

became the world's Factory floor by

driving up tons and tons of expansion

and becoming this giant manufacturing

Powerhouse the country's GDP regularly

saw double digit growth and in 2010 it

overtook Japan to become the world's

second largest economy people who were

farmers moved to the cities and became

Factory workers it brought tremendous

amounts of wealth to all of these people

really just driving them up out of

poverty and into this burgeoning massive

middle class the rise of China's middle

class benefited a wide range of

multinational Brands Volkswagen for

example sold over half a million cars in

China in 2005 by 2019 it was 4 million

Apple's China sales went from almost 13

billion dollar to close to 70 billion

within a decade by 2018 the cosmetics

giant Estee Lauder relied on China for

most of its sales

growth 36-year-old Stephany has only

known a surging China she started

working 10 years ago helping companies

enter the Chinese market she just

assumed the quality of life would keep

improving

but then that boom story came to a halt

during the pandemic China stuck to a

strict covid zero policy that made local

governments spend massive amounts of

money on quarantine and testing and saw

businesses factories and entire cities

shut down over a handful of infections

geopolitics especially tensions with the

US have exacerbated the problems facing

China's economy former president Donald

Trump imposed a raft of tariffs on

Chinese goods and the Biden

administration's limits on China's

access to chip technology along with

concerns about a possible conflict over

Taiwan have all meant foreign businesses

have reduced their direct investment

into China and there's also the property

crisis this is an economy that was built

up through this rapid expansion of

infrastructure projects fueled by uh

rapid buildup of debt among developers

among local governments you've seen the

government crack down on bad actor

developers trying to reign in

unnecessary spending or Shadow debt but

that's created this massive confidence

crisis within China we've also seen that

translate into weakness within the stock

market people flee the equities Market

under this this fear that the economy is

just slowing down too

much

in 2023 Stephanie was let go when her

employer decided to downsize its

operations in

China Stephanie is not

alone

nearly one in3 Chinese office workers

reported falling salaries in 2023 the

highest share in at least 6

years to make ends meet Stephanie found

a job as an insurance agent but her

income saw a big

drop

for those who are entering the job

market the situation is even worse in

fact youth unemployment got so bad that

China stopped publishing the data for a

few months fresh graduates like Y shiong

and her girlfriend now have to keep a

close eye on their

finances oh my

God

for

it's this change in attitude that will

have broader implications for the rest

of the world Al those companies that

depended on China for much of their

growth are going to have a way tougher

time going forward and that has

implications for spending outside China

too we still haven't really seen uh that

returned tourism to other parts of the

world in the way that you'd ultimately

want to see out of the uh Chinese

spender and finally there's the

political piece which has big

consequences this new economic reality

in China is also likely to lead to this

new political reality the Slowdown

complicates things for president Xi

Jinping who is seeking to solidify his

position as China's most powerful leader

since

maong when the economy is booming people

are more likely to accept the Communist

party's controls on things like freedom

of speech in exchange for Prosperity a

slowing economy risks the opposite

reaction it also means China's influence

outside the country may be curtailed

with foreign spending on the same scale

as recent years becoming harder to

justify there are ramifications for us

taxpayers too China has for much of the

past three decades been one of the

single biggest investors in US

treasuries bonds sold by the US

government to pay for public

services China has already cut back on

its US debt Holdings in a big way if

that continues it could become more

expensive for the US to borrow money for

now it's ordinary Chinese bearing the

brunt of the

Slowdown

for