In a concerning turn of events, Wall Street analysts have once again downgraded China’s economic growth forecasts for both 2023 and 2024. This places the world’s second-largest economy at risk of falling short of its official growth targets for the second consecutive year, potentially leading to a historic stretch of three years with growth below 5% – a situation not witnessed since 1976.
The implications of this ongoing economic downturn could extend beyond the financial realm, with potential long-term geopolitical ramifications and the possibility of impacting President Xi Jinping’s political standing. If this trend persists, China may find itself downgraded to the status of a “middle growth country” by the year 2035.
China’s remarkable economic expansion over the years allowed the nation to outpace the growth of the United States by substantial margins for more than two decades. From a GDP of $1.2 trillion at the turn of the century, equivalent to only an eighth of the US economy, China surged to nearly 72% of the US economy by the year 2021.
However, this remarkable boom is now facing the risk of a bust. In the first half of 2023, China’s GDP actually contracted in dollar terms, a concerning development corroborated by Bloomberg data. This contraction came as the yuan depreciated by 5% against the US dollar while the US economy continued to thrive.
At the party conference in October, President Xi Jinping set an ambitious target for China – to become a “middle-growth economy” by 2035. To achieve this, China would need to maintain an average yearly growth rate of 4.7%, which, while challenging, remains within the realm of possibility.
Nevertheless, it is crucial to note that China has only achieved a growth rate of 3% in recent years. This sluggish pace raises concerns and underscores the urgent need for substantial reforms and official stimulus measures to reignite the economy and propel it once again towards robust growth.
