Why China’s economy is weakening | tagesschau.de

China has had a difficult year. President Xi recently had to admit economic problems. And things won’t get any easier in the new year.

In his New Year’s address, Xi Jinping praised the achievements of 2023 and encouraged the nation to enter the new year with confidence. But there was also a brief admission from the head of state and party that there were economic problems.

That’s part of it, says Xi. Some companies would have a difficult time, and some people would have problems finding a job and in everyday life. Such comments from the head of state and party are rare. But it cannot be overlooked that things are not going well economically in China.

Production in China shrank

Just a few hours before the New Year’s speech was broadcast, the statistics office in Beijing published new figures on industrial production. China’s manufacturing activity contracted for the third consecutive month in December, according to the official Purchasing Managers’ Index (PMI). It fell to 49.0 from 49.4 in November. This means that the purchasing managers’ index remains below the growth threshold, which is 50.

A year ago, the Chinese economy initially appeared to be recovering quickly after the end of the strict zero-Covid policy, but the situation worsened again over the course of 2023. The World Bank and the International Monetary Fund each assume that China’s gross domestic product increased by more than five percent last year. This would mean that the communist state and party leadership’s target of around five percent economic growth would be met.

Indebted corporations and Real estate crisis

But this year it won’t be any easier. The problems are still the same. The real estate crisis has not been solved: indebted companies such as Evergrande and Country Garden are still fighting for survival. Housing prices are falling and less is being built. Gone are the days when the real estate industry accounted for up to a third of the economy.

More and more local and regional governments are in debt and are no longer making money from the sale of building land.

Young people without jobs, population is shrinking

A record number of young people are unemployed. In addition, society is aging, the population is shrinking, and many Chinese no longer want children. Demand in China and internationally remains weak. This puts a strain on the economy, which is still geared towards production and exports.

The People’s Republic is on the threshold of deflation, meaning it is struggling with falling prices – which is considered bad for the economy. The People’s Republic has been trying to solve the problems for years. The communist leadership has already announced further economic stimulus measures. State banks have further reduced interest rates to encourage investment. However, according to international analysts and business representatives, there is no overall concept for stimulating and opening up the economy.

Over the past ten years, state and party leader Xi Jinping has strengthened the influence of the Communist Party at all levels and pushed back the free market.