Chinese economy has slowed down significantly since Covid-19 outbreak. The average GDP growth rates for the last 5 years have been between 5 to 6%, down from the previous 5 years between 7-9%. Growth in 2024 was 5%.
China’s property market, which accounted for 25-30% of GDP most of the last 2 decades, went through a painful bust. Household wealth, much of it in properties, declined. Unemployment went up, especially for the fresh college graduates.
Another wave of books and theories about “China Collapse” have found eager audiences in the western media and economic circles. Doomsday sayers abound with ideas ranging from “demographic disaster” to “Japanfication”. Reputable economists are making forecast how the Chinese economy may never catch up with the US.
The situation is certainly painted very dire in the western media. However, for someone who lives in China, things are hardly that alarming. Frankly, it seems most Chinese are taking things in stride. Many are quite happy with the way things are compared with the go-go days of 2000s and 2010s.
Why the discrepancy in perceptions? What is the true state of the Chinese economy? How is the slower GDP growth impacting people’s lives?
As always, the secret to deciphering China’s economic performance and people’s attitude lies in the details. Most western mainstream media reports follow a meta-narrative of China bashing, making them hardly unbiased observers. In fact, most of the economic theories are nothing more than wishful thinking for those who want to see China’s progress stalled.
Here are some facts to consider when you poke through the surface and understand the economic reality in China –
– GDP contribution of the property industry was a negative 2% in 2024, meaning the rest of the Chinese economy grew 7% to achieve a 5% overall growth.
– Total contribution of the property industry to Chinese GDP has fallen below 20% from a high of 25-30% a few years ago. This is a much-needed rebalancing as more capital and resources are now redirected to other productive industries such as green energy and high tech,
– Housing prices have fallen between 30 to 40% in most Chinese cities in the past 5 years. This has a massive downward wealth effect for property owners, pressuring consumer spending. But housing has become much more affordable for urban households. Housing sales and rental prices have both declined.
– Few Chinese households have got into financial crisis from falling housing prices as average mortgage borrowing is less than 50% of total housing price. There is a much higher level of downpayment in China than elsewhere (typically 70-80% borrowing).
– Housing sales and prices have started to stabilize in the second half of 2024. The government is planning to buy out the surplus supply and turn them into low-price affordable housing units.
– There is little to no consumer inflation in China in the last 5 years, in sharp contrast with most other countries, especially the west. Prices for food, automobiles, consumer goods, electronics, utilities, telecom services, and public transportation have been flat or declining, especially for new cars. On the hand, both new and used car prices have risen sharply in both the US and Europe.
– Annual household income growth for the past 5 years was 6.5%. Now a greater proportion of GDP is going to household income, giving China one of the highest income-to-GDP ratio globally. Urban retirement income has been raised 3 to 5% annually in the last decade, far outpacing CPI which is less than 2%.
– While luxury consumption has declined, affecting businesses such as LVMH, middle class spending has not slowed down. The average daily calory and protein intake for the Chinese has overtaken the US, according to WHO. China continues to import vast quantities of soybean, wheat, beef, seafood, and fruits from Brazil, Russia, Australia, Thailand and Malaysia.
– Discretionary consumer spending has bounced back to pre-Covid level, with travel expenditure, education and entertainment spending on double digit growth. The Chinese box-office in the 5 days during Chinese New Year last week grew 18% yoy and reached a record $1.2 billion. 4 films each grossed more than $150 million. A record number of 4.2 billion trips is recorded during the two-week period around Chinese New Year. Most tourist attractions all over the country are packed back-to-back.
– Apart from consumer spending, Chinese global trade reached a record of $6 trillion in 2024, with an unheard-of $1 trillion surplus. China is now leading the global auto industry, photovoltaic industry, solar/wind/hydro/nuclear power industry, robotics, etc.
China has increased its share in global semiconductor industry. China has even made inroad in the commercial aviation industry with COMAC taking a bigger share of narrow-body passenger aircraft market.
In fact, I challenge anyone to name a single manufacturing industry where China has not become more competitive, moved up the value chain, and gained global market share.
For the average Chinese, the top-line GDP growth number matters little. I suppose the feeling is shared by the average Americans, who were barely moved by Biden’s so-called high GDP growth in the voting box.
For the average Chinese, the slower GDP growth has translated into 1) lower housing cost; 2) little inflation; 3) no impact on real income growth. I doubt many are feeling gloom and doom.
On the other hand, the “high” GDP growth in the US has not benefited the average Joe-six-pack who must deal with higher housing prices and rents, high inflation across a full spectrum of products and services, including big-item spendings in cars, student loans and healthcare.
Once again, if you read the voodoo economics from the propaganda machine, you will get the relative economic well-being of the Chinese and the American completely wrong.
