"" China's economy is a Ticking Time Bomb stated Joe Biden

China's economy is a Ticking Time Bomb stated Joe Biden

For China's economy the previous six months ended with a constant flow of negative news. Slow development, record-low foreign investment, weak exports, a declining currency, record youth unemployment and a troubled real estate market are all factors affecting the economy. US President refers to the China economy as a ticking time bomb. China's president Xi Jinping responded by defending the economy's "strong resiliency, immense potential and great vitality." So, Mr. Biden or Mr. Xi who is correct? The reply probably falls somewhere in between as is frequently the case. Although the economy is not going to collapse very soon China faces massive systemic issues.

China's economy is a Ticking Time Bomb stated Joe Biden

A real estate crisis and lower income households.

An economics professor at Singapore's INSEAD business school Antonio Fatas said China's real estate market is the root cause of its economic issues. A third of its total wealth was derived from real estate. This was illogical. No logic at all. A persistent housing construction program is not a good idea in the midst of a global epidemic and a domestic population decline. The government then imposed restrictions on how much developers could borrow because they expect a financial crisis similar to one that hit the US in 2008. They soon owed billions that they were unable to repay.

Now that housing demand has decreased and prices for real estate have risen significantly. After three years of strong coronavirus restrictions made Chinese homeowners poorer. According to Alicia Garcia-Herrero, head Asia economist at wealth management company Natixis, "Property is essentially your savings in China." Until recently it looked to be a better option than investing in the irrational stock market or a low interest savings account. It indicates that in contrast to Western nations there hasn't been a post-pandemic spending boom or significant economic recovery.

A poor economic strategy.

The real estate crisis draws attention to issues with how China's economy runs. Building was the driving force behind the nation's phenomenal expansion during the previous 30 years including factories, airports, roads, bridges and train lines. Local governments are in charge of carrying this out. Some economists claim that this strategy is both metaphorically and physically beginning to run out of road. In Yunnan province one of the odd representations of China's devotion to construction may be discovered. Officials stated that this year they will move forward with their plans to erect a brand-new multi-million dollar Covid-19 quarantine facility.

Local governments with significant debt are under such severe pressure that this year it was reportedly discovered that some were selling land to themselves in order to pay for construction projects. The nation must find another means to bring wealth to its citizens. We are at a turning point says Professor Fatas. The old model is not working but serious structural and institutional reforms are required to change focus.

In July the unemployment rate among 16 to 25 year-old job seekers reached a record high of 21.3%. Officials made the decision to discontinue releasing the numbers public the following month. Professor Fatas claims that the fact that a rigid centralised economy finds it difficult to incorporate such a large number of people into the labour market is evidence of this. When a new bridge needs to be built a top-down approach works well but when it's already built and people are still looking for work it appears inefficient.

An unstable economy in China

Then, what will government do?

A shift in political ideology is necessary for an economic orientation change. This doesn't seem likely given the Chinese Communist Party's (CCP) recent tightening of control over society and President Xi's recent tightening of control over the CCP. The authorities can claim that it is not even necessary. In some ways China itself a victim of its own success. China has 9% annual growth on average since 1989. This number is reach about 4.5% in 2023.

It is a sharp decline but it is still significantly higher than the economies of the US, UK and the majority of European nations. Some believe that this is perfect for China's leadership. Western economies are typically driven by consumer spending but Beijing is concerned of this approach. It is considered to be both wasteful and individualistic. Increasing consumer power to make purchases like a new TV, streaming service subscriptions or vacations may benefit the economy but it has little impact on China's national security or its ability to compete with the US.

The government should act immediately to allay the concerns of foreign investors in China but those in power appear to be taking a patient approach. They are aware that on paper China still has a tremendous amount of room to grow. Even though it is a financial powerhouse but the average yearly salary is barely $12,850. Right now China has previously survived numerous crises. But there is no denying that the country's leadership is currently dealing with a particular set of difficulties.

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