Economic insights from China

Economic indicators released by Chinese authorities, media outlets, and researchers suggest a recent downturn in China’s economic fundamentals.

- Dr. Rajiv Khosla

Declining prices, decreasing exports and imports, rising unemployment, and an unfolding crisis in the real estate sector are key concerns highlighted by both international and domestic media. Leading international banks and rating institutions forecast that China’s growth rate may remain below 5% for the current year, with projections of 4.4% and 4.2% for 2025 and 2026, respectively. This trend is attributed to the real estate crisis, weak consumer demand, and the aging population in China. China’s share of global GDP, which stood at 18.3% in 2021, declined to 16.9% by 2023. This shift prompts reflection on whether this is the same Chinese economy that boasted the world’s fastest growth from 1978 to 2018, averaging 9.5% annually.

China’s Development Path

A review of China’s economic history reveals that from 1949 (the year of China’s independence from Japan) until 1976, under Mao Zedong’s leadership, China’s economy was largely state controlled. Critics argue that Mao’s development model confined China to a primarily rural and underdeveloped economy. In 1978, facing demands for additional investment in strategic sectors, Deng Xiaoping, a prominent Chinese leader, initiated market reforms, opening the country’s economy to outside influences. Deng’s approach focused on transforming rural industries, fostering private businesses, and liberalizing foreign trade and investment. Post-1978, China prioritized investment and export-oriented manufacturing, earning the moniker “Factory of the World” due to factors such as low labor costs, favorable tax structures, robust infrastructure, and a weak currency (the Yuan).