Two related pathologies often affect analyzes of China: triumphalism and collapse. The first is diagnosed among those who see the rise of the Middle Kingdom as inexorable and unshakable, destined to reoccupy the center of the world.
The current challenges of the Chinese economy, however, favor the second analytical bias – collapse. For starters, the real estate sector, which accounts for about 25% of the country’s GDP, faces serious problems. Sales fell by more than 30% in the first half, but construction companies depend on new projects to complete those in progress. Faced with the fear that works will be paralyzed, buyers joined “payment strikes”. And, without receiving the installments, the construction companies do not complete the works.
A self-fulfilling prophecy in a highly leveraged and indebted sector. Analysts recall, not without reason, the risk that the housing crisis will spread to the financial sector and infect the economy as a whole.
In addition, there are increasing costs in maintaining the zero Covid policy in the country. In 2020, China was the first to enter and the first to leave the initial phase of the pandemic. The economy recovered in V. Two years later, the authorities are still looking for a way out of the strategy that, in the beginning, effectively worked. Lockdowns in Shenzhen and Shanghai this year have taken a toll on economic activity.
To make matters worse, unprecedented droughts are now causing energy shortages. Still, the technology sector is feeling the effects of recent restrictive regulations. To top it off, geopolitical tensions increase.
Despite the announced growth target of 5.5% for 2022, Chinese GDP was virtually stagnant in the second quarter. The IMF estimates that the expansion will be 3.3%, which, deleted 2020, would be the smallest in more than four decades.
In this scenario, it is not surprising that collapse is on the rise. From all corners, analyzes are emerging that paint a picture of the collapse of the Chinese economy. And who prophesy that this time is for real. The bubble that never bursts — the title of a book on China by Bloomberg’s chief economist — would now burst.
It so happens that both triumphalism and collapse suffer from confirmation bias. Adherents of both practices only value what reinforces their theses. They tend to analyze reality in the light of what they would like to happen. For the collapsers, the current economic picture of China corroborates the apocalyptic view.
Despite the seriousness of the problems, there is exaggeration among those who see only weaknesses and ignore both the resilience of the Chinese economy and the fact that the authorities have more tools and fewer restrictions to correct economic directions than elsewhere. It’s not guaranteed they’ll get it right — but they certainly have more tools to do so.
In 2016, the well-known Foreign Affairs brought an article titled “The End of China’s Rise”. In 2021, the same magazine brought another article with the exact same title. On Twitter, an observer ironically asked whether Foreign Affairs was under some sort of contractual obligation to periodically publish a text anticipating China’s downfall.
A second logo ran the cover of another renowned publication, Foreign Policy, whose title, in 1995, predicted “China’s imminent collapse.” China’s GDP per capita surpassed US$1,520 to $11,200 since then.
Both analytic pathologies are opportunistic, stubborn, and harmful. Far from the excesses of extremes, China may indeed be embarking on a slower growth trajectory — which doesn’t mean its economy is about to crumble. This is not the first time that China has collapsed. It won’t be the last.
