Global Reactions to China's Moves

The Chinese economy, which has struggled to recover since the COVID-19 pandemic, is showing signs of deepening recession.

The Chinese economy, which has struggled to recover since the COVID-19 pandemic, is showing signs of deepening recession. Global investment banks have been revising down their growth forecasts for China, reflecting growing concerns over its economic outlook. This article delves into the factors contributing to China's economic slowdown, how the Chinese government is responding, and the impact on the global economy.

China's economic slowdown is becoming more pronounced, and concerns about a potential recession are mounting. Let's examine the current state of the Chinese economy.

1. A Bursting Real Estate Bubble

China's real estate sector, which has been a major driver of its economic growth, is now facing a severe downturn. Over half of the 70 major cities in China have seen property prices decline for more than a year, and there are currently around 60 million unsold apartments—more than the population of South Korea. The collapse of this real estate bubble is hitting the economy hard.

2. Empty Coffers of Local Governments

Local governments in China are struggling with financial difficulties. For years, they relied on selling land-use rights to construction and real estate companies to generate revenue. However, with the real estate market slowing down, this source of income has dried up. Currently, 30 out of 31 provincial governments are in deficit, with total accumulated deficits amounting to about 372 trillion won (approximately $280 billion USD).

3. Global Companies Leaving China

The ongoing U.S.-China tensions have led many global companies to withdraw from China. Last month, IBM announced the closure of its R&D operations in China, and Din Tai Fung, a well-known Taiwanese dim sum chain, closed 14 outlets. These moves highlight the growing pessimism about China's economic future among international businesses.

4. Rising Youth Unemployment

Youth unemployment in China is on the rise, with the rate reaching 17.1% in July. Many companies have reduced their hiring, and even government positions are being cut. With a record 11.79 million university graduates set to enter the job market this year, China is facing an unprecedented employment crisis.

5. Shrinking Consumer Spending

Chinese consumers are tightening their belts. Domestic consumption has weakened significantly, with a shift toward "Pingti Consumption" (frugal spending) becoming a trend. Consumers are cutting back on luxury goods and seeking affordable alternatives.

China's Response to the Economic Crisis

The Chinese government and businesses are taking various measures to combat the recession:

- Loosening Regulations : The government is rolling out policies to revive the real estate market, such as lowering mortgage rates and relaxing home purchase restrictions. However, these measures have had limited success so far.

  

- Turning to Foreign Markets : Chinese companies are looking outward to offset weak domestic demand by exporting excess inventory at low prices, effectively engaging in "dumping."

China's low-cost exports are creating headaches worldwide, as local industries struggle to compete with cheaper Chinese goods. Various countries are responding with their own strategies:

- United States 🇺🇸: The U.S. is raising trade barriers by imposing additional tariffs on Chinese goods (anti-dumping) and countervailing duties on products that have benefited from Chinese government subsidies.

  

- Europe 🇪🇺: The European Union is increasing investigations into Chinese government subsidies and has recently imposed tariffs of up to 37.6% on Chinese electric vehicles. It is also considering tariffs on low-cost Chinese goods sold on platforms like AliExpress and Temu.

Countries like Mexico, Chile, Indonesia, and Turkey have already imposed or are considering tariffs on Chinese products. Canada has also announced new plans to levy tariffs on Chinese goods. This presents an opportunity for South Korean companies to gain market share in sectors like batteries, solar power, and petrochemicals.

China's economic woes are causing ripples across the global economy. As countries respond with protective measures, new opportunities are emerging for businesses in other regions, particularly in South Korea. Understanding these dynamics is crucial for navigating the challenges and opportunities presented by China's recessionary trends.