Chinese Slowdown
China has long been the engine of global economic growth, consistently posting high GDP growth rates for decades. However, in recent years, the world’s second-largest economy has shown signs of slowing down. Analysts and policymakers alike are examining the causes, consequences, and potential solutions to this problem, as it has significant implications not only for China but for the global economy as a whole.
Macroeconomics: Structural Causes
China’s shift from an export-led economy to domestic consumption has naturally curbed its growth.
The World Bank: “China’s rebalancing from investment and manufacturing to consumption and services is a necessary adjustment, but it is reducing overall GDP growth."
China’s demographic problem is becoming increasingly pronounced. The country’s working-age population has been shrinking since 2012. By 2022, the birth rate had fallen to a record low.
The United Nations: "The median age of China’s population is expected to rise from '38' in 2020 to '50' by 2050.” This trend is exacerbating labour shortages and straining social security systems.
Impact: Domestic Challenges
Slower growth has led to higher unemployment, especially among the youth. In 2023, youth unemployment hit a record high of more than 20%, according to China’s National Bureau of Statistics. Weaker economic data has put pressure on public finances, limiting the government’s ability to implement large-scale stimulus measures.
Impact: Commodities
China’s decreased demand for commodities has led to notable price reductions. For instance, copper prices have experienced a decline due to the slowdown in China’s industrial activity. Reports suggest that China’s copper demand has grown by 8% this year, faster than the 5% state target for overall GDP growth, indicating a complex dynamic in commodity markets.
Impact: Trading Partners
Germany, with its robust industrial sector, has been significantly affected by the downturn in Chinese demand. China has been Germany’s most important trading partner for years.
However, in 2023, German trade in goods with China declined by 15.5% compared with 2022, while trade with the United States grew slightly by 1.1%. The Federal Statistical Office (Destatis) reports that U.S.-China total trade is only 0.7 (bn euros) higher than the foreign trade volume with the United States (252.3 billion euros).”
Brazil, a leading exporter of soybeans and iron ore to China, continues to feel the pinch from reduced Chinese demand. Commodity prices continue to fall, from reduced producer demand, in turn leading to a disproportionate fall in total revenus for Brazilian commodity exporters. According to Euromonitor International, “slower growth in China will negatively affect commodity exporters, especially in Latin America and Australia.
Looking Ahead in 2025
China’s economic slowdown has domestic and global implications.
For the Chinese Communist Party, it presents fundamental poltiical issues for the regime amidst a aging population with a bulk in youth unemployment.
Globally, a Chinese slowdown will add weight to a slowing global economy. China maintains its position as the key producer and consumer of imported goods, namely commodities, in turn affecting government export potential in key export markets: African markets, Germany, Brazil, and the wider Americas.
As China navigates these changes, its success in finding stability will play a major role in shaping the future of the global economy.
