Can China get its economic miracle back on track in 2024?

The disappointing post-Covid recovery of China has raised significant questions about the foundations of its decades of impressive growth and has presented Beijing with a difficult choice for 2024 and beyond: borrow more or grow. less.

Expectations were that once China abandoned its draconian rules COVIDconsumers would return to shopping malls, foreign investment would resume, factories would rev up, and land auctions and home sales would stabilize.

Frustrated expectations have partly vindicated those who always doubted China’s growth model, with some economists even drawing parallels with the Japanese bubble before its “lost decades” of stagnation beginning in the 1990s.

China skeptics argue that Beijing failed to shift the economy from construction-driven development to consumption-driven growth a decade ago, when it should have. Since then, debt has outpaced the economy, reaching levels that local governments and real estate companies are now struggling to pay.

But it remains difficult to find a concrete long-term roadmap to clean up the debt and restructure the economy.

Why it matters

It is likely that China grow by approximately 5% in 2023, outpacing the global economy. However, behind that headline is the fact that China invests more than 40% of its production – twice as much as USA-, suggesting that a significant portion of that amount is unproductive.

That means that many Chinese do not feel that growth. Youth unemployment topped 21% in June, the last set of figures before China stopped reporting.

College graduates who studied for jobs in advanced economies are now taking low-skilled jobs to make ends meet, while others have seen their pay cut.

In an economy where 70% of household wealth is stored in property, homeowners feel poorer. Even in one of the economy’s few bright spots, the electric vehicles, A price war is causing problems for suppliers and workers.

National pessimism could present the president Xi Jinping risks to social stability, analysts say. If China falls into a Japan-style decline, it would do so before achieving the kind of development that Japan achieved.

This would be widely felt as most global industries are significantly dependent on suppliers from China. Africa and Latin America are counting on China to buy their commodities and finance their industrialization.

What it will mean for 2024

The problems of China They leave you little time before you have to make some difficult decisions.

The authorities are interested in changing the structure of the economy, but reform has always been difficult in China.

A push to increase the well-being of hundreds of millions of rural migrant workers, who could – according to some estimates – add 1.7% to GDP in household consumption, if they had similar access to public services as urban residents, since is stalling due to concerns about social stability and costs.

China’s efforts to resolve its real estate and debt problems are running into similar concerns.

Who pays for your bad investments? Banks, state-owned companies, the central government, companies or households?

Either of those options could mean weaker future growth, economists say.

For now, however, China appears reluctant to make decisions that sacrifice growth for reform.

Government advisers are calling for a growth target of around 5% for next year.

While that’s in line with its 2023 target, it won’t have the same flattering year-over-year comparison with the drop caused by the 2022 lockdowns.

Such a target could push it into more debt, the kind of fiscal easing that led Moody’s to cut China spending. China’s credit rating outlook is negative this month, sending Chinese stocks to five-year lows.

Where that money is spent will tell us whether Beijing is changing its approach or doubling down on a growth model that many fear has come to an end.