The WSJ reports that China's 40-year economic boom is "ending"

China's economic growth has slowed sharply and could turn into protracted stagnation, similar to what Japan has been experiencing since the early 1990s, writes WSJ. Analysts attribute this to debt overload and the destruction of relations with the West

Chinese economic growth, which lasted almost 40 years and made the country one of the world's largest economies, has come to an end, write economic commentators for The Wall Street Journal (WSJ) Linglin Wei and Stella Yifan Xie.

Journalists note that for decades, economic growth has allowed the Chinese authorities to invest in the construction of factories, skyscrapers and roads. “This model sparked an extraordinary period of growth that lifted CHINA out of poverty and transformed it into a global giant whose EXPORT prowess spread throughout the world,” the article says.

However, today this economic model has exhausted itself, analysts say. They note that Beijing is running out of room to expand infrastructure, parts of China have underused bridges and airports, millions of apartments sit empty and returns on investment have plummeted.

“Signs of trouble are visible not only in China's dismal economic data, but also in outlying provinces, including Yunnan in the southwest, which recently said it would spend millions of dollars building a new covid-19 quarantine facility  the size of almost three football fields. despite the fact that China ended its “zero COVID” policy several months ago,” the journalists write.

In addition to unnecessary spending, the Chinese economy faces unfavorable demographics and a “widening gap” with the US and its allies, which also threatens foreign investment in the country. “This may not just be a period of economic weakness, but the end of a long era,” the WSJ authors note.

The newspaper cited data from the International Monetary Fund, which estimates China's GDP growth in the coming years to be below 4%, less than half its growth rate over the past four decades. London-based Capital Economics believes trend growth in China has slowed from 5% in 2019 to 3% and will fall to around 2% in 2030. At this rate, China will not be able to achieve the goal set by Xi Jinping in 2020 to double the size of the economy by 2035, the WSJ notes.

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“This will make it difficult for China to emerge as a middle-income emerging market economy and could mean China never overtakes the United States as the world's largest economy, a long-standing ambition of Beijing,” the article said.

Some economists interviewed by the WSJ believe China's economic slowdown could turn into protracted stagnation similar to what Japan has experienced since the 1990s, when a burst housing bubble led to years of deflation. A similar bubble could burst in China's real estate market: One in five apartments in Chinese cities, or at least 130 million units, were unoccupied in 2018, according to a study by China's Southwest University of Finance and Economics. Due to falling demand and rising inflation, many developers in the country found themselves on the verge of bankruptcy.

Economists say the most obvious solution to China's economic problems would be to shift to consumer spending and services, which would help create a more balanced economy that more closely resembles that of the United States and Western Europe. According to the World Bank, household consumption accounts for only about 38% of GDP in China, which is relatively small compared to 68% in the United States.

Today, the Chinese economy continues to operate on debt, the newspaper notes. Total debt, including debt held by various levels of government and state-owned companies, has risen to nearly 300% of China's GDP as of 2022, surpassing U.S. levels and up from less than 200% in 2012, according to data from the Bank for International Settlements. At the same time, Chinese cities took on most of the debt. Constrained by Beijing's ability to borrow directly to finance projects, it has turned to off-balance sheet financing mechanisms, whose debt is expected to reach more than $9 trillion this year, according to the IMF .