Zhou Xin

My Take | China economy: Beijing must make strong preparations for a period of slow growth

China is expected to record 5 per cent economic growth this year, but that number has lost its relevance to many investors and consumers

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The odds are small for a sharp economic rebound in China, as expectations are for low single-digit growth in the coming years. Photo: Shutterstock

Zhou Xin

Published: 7:00am, 31 Dec 2024

For many Chinese, 2024 will be remembered as a year when they had to come to terms with the prospects of a long period of slow economic growth.

While China’s statistics agency is expected to publish data showing around 5 per cent economic growth for the year, that headline number has already lost its relevance to many investors and consumers.

The country’s 10-year government bond yield, for example, fell below 2 per cent for the first time on record earlier this month. According to a censored speech by renowned Chinese economist Gao Shanwen, the gross domestic product growth rate was probably overestimated by three percentage points.

The long-term structural restraints on China’s growth prospects, including a shrinking population and housing oversupply, became more visible this year, which prompted many private enterprises to either scale back investments or throw in the towel on their businesses.

As such, economists have flagged the risks of China falling into a so-called balance-sheet recession, characterised by high levels of private-sector debt that lead to increased savings, which in turn results in an economic slowdown. That is a term used by Nomura Research Institute’s Richard Koo to describe Japan’s “lost decade”.

While China’s current situation is better than that of Japan years ago, Beijing does not always have the means to spur an extended economic growth spurt. The housing market is a prime example.

For years, Chinese authorities imposed many restrictions on property developers and potential homebuyers to curb speculation. The country’s housing market slump, however, persisted even when the government loosened restrictions or reversed certain policies. The result was that more households no longer see property as an ideal venue to park their wealth.