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The continued slowdown of the Chinese economy is making the future more uncertain. This could be a risk for the global economy and requires vigilance.
China’s real gross domestic product in the July-September 2024 period grew 4.6% from a year earlier. The growth rate shrank for the second consecutive quarter.
The annualized quarterly growth rate, a key indicator used by developed countries, was around 3.6%. The Chinese government has set a target of “around 5.0%” growth over the whole year in 2024, but it is not clear whether this will be achieved.
The main reason for this is the severe slump in the real estate market and related industries, which are said to account for a quarter of GDP.
There is an excess inventory of new residential housing, as well as a decline in investment for real estate development. Real estate accounts for a significantly higher share of household assets in China than in the West, and the decline in real estate prices will lead to a drop in consumption, which is a cause for concern.
The Chinese economy slumped in 2022 due to Beijing’s zero-COVID policy, which was designed to contain the spread of the disease through strict restrictions on social activities. The recovery in 2023, when that policy ended, proved sluggish, and the economy has remained stagnant in 2024.
In response to the economic slowdown, the Chinese government has launched a series of fiscal spending and monetary easing measures. These steps are expected to provide some support to the economy for the time being.
However, the problem with the Chinese economy is that it has yet to break away from its dependence on real estate, investment and exports.
It needs to shift to a consumption-driven economy, but the administration of Chinese President Xi Jinping is focused solely on promoting high-quality development and further strengthening the manufacturing sector. This will make stable growth difficult.
If China, in response to the shrinking domestic market, excessively increases production through subsidies and leans further into exports in the future, rather than improves the lives of its people, friction will inevitably intensify with major advanced economies, such as Japan, the United States and those in Europe.
Declining investment from abroad is also having a negative impact on the economy.
This summer, China indicted a Japanese company employee on espionage charges. Last month, a 10-year-old Japanese boy was stabbed to death by a Chinese man. Chinese authorities have not disclosed details, and Japan is deeply concerned.
China should also face the fact that its stance, which cannot be said to be that of a law-abiding nation, dampens appetite for investment.
In addition, as the Chinese market is unlikely to grow at a high rate, competition with Chinese firms is intensifying. Under such circumstances, there have been numerous cases of Japanese firms, such as Honda Motor Co. and Nissan Motor Co., moving to close plants in China.
Besides reviewing its production system, it will be an important issue for Japan to promote the rebuilding of its supply chains from the perspective of economic security.
