At the start of the World Economic Forum in Davos, Ukrainian President Volodymyr Zelensky made the headlines. But the Chinese appearance also caused a stir on Tuesday. This year, China only sent Prime Minister Li Qiang to the elite meeting and not President Xi personally. But the number two came to the elite meeting with a clear agenda: China is a country that can be trusted, emphasized Li Qiang in his speech.
This was not related to the simmering Taiwan conflict, but to China’s role in the global economy, which is also important for the German economy. Li Qiang’s message was that the second largest economy is back on track after the Corona crisis. To reinforce this, the Prime Minister even revealed the highly anticipated growth figures in advance. The Chinese economy grew by 5.2 percent last year, as the statistics office in Beijing confirmed on Wednesday.
Officially, the government’s growth target was even exceeded. However, some experts doubt that the numbers can be trusted. The US think tank Rhodium wrote a few days ago that the Chinese government would most likely announce growth of around 5 percent. In fact, growth is estimated at 1.5 percent, according to the analysis.
It is clear that the Chinese economy is facing greater challenges than one would like to admit. Five construction sites in particular catch the eye:
The real estate crisis in China continues to have an impact. Major real estate developers face massive debt problems that pose risks to the banking system and the broader economy. The Chinese real estate giant Evergrande alone has accumulated debts worth more than $300 billion (around €276 billion). In January 2022, the company announced a restructuring plan, but has so far been unable to reach an agreement with its creditors. The next court date is at the end of January. Although Beijing is trying to stabilize the market, the outlook remains uncertain.
Many Chinese people are also holding back on spending money because their apartments are suddenly worth less. This is evident both at the checkout and in larger purchases that are postponed due to the existing uncertainties. Consumption is recovering more slowly after the corona pandemic than Chinese economic planners had hoped. German companies also see the crisis of consumer confidence as a problem, according to Jens Hildebrandt, executive board member of the German Chamber of Commerce (AHK) in Beijing. One prepares for a continuation of the hanging game.
Amid low demand, consumer prices in China fell 0.3 percent year-on-year in December. It was already the third month in a row with a minus. Economists see the trend as a warning sign that China could slide into longer-term deflation. Deflation is the opposite of inflation and refers to the decline in the general price level. A broad-based price decline occurs when consumers hold back on purchases in anticipation of ever-decreasing prices, which in turn depresses companies’ sales, profits and investments.
China has long suffered from a sharp decline in the birth rate and an aging population. However, the effects of the decades-long “one-child policy” are becoming increasingly clear. The population fell for the second year in a row last year, the Beijing Statistics Bureau reported on Monday. 9.02 million babies were still born in China. At the same time, the number of deaths rose to 11.1 million. The easing of the controversial birth control regime has only led to a slight increase in the number of births since 2016. Experts see the high costs of housing, education and health care in China as well as the declining willingness to marry as the real reasons for the worrying development.
Uncertainties also arise for the Chinese economy due to the geopolitical situation. Chinese industry suffers from the block formation between East and West. For example, in the race to develop artificial intelligence, Washington has decided on stricter restrictions on chip deliveries to China. In addition, there are elections in the USA this year. Both Republicans and Democrats usually take a particularly tough tone against China. Things are likely to be particularly bitter for Beijing if Donald Trump moves into the White House again. During his time in office, he was the trigger for the much tougher approach towards China.
