China’s Economy Expected to Shrink Over Next Four Years

In a recent report released on Friday, the International Monetary Fund (IMF) has forecasted a continued economic decline for China over the next four years. The projections highlight various challenges faced by Beijing, including a rapidly aging population, higher unemployment, and a looming property crisis. The IMF anticipates China’s economic growth to decrease to 4.6 percent in the current year, down from 5.2 percent in 2023, with a further drop to 3.4 percent by 2028.

A significant contributor to the economic concerns is the troubled Chinese property market, with the Hong Kong court directing property giant Evergrande to liquidate. The IMF analysis suggests a potential 30 to 60 percent drop in real estate investment over the next decade relative to 2022 levels, emphasizing the need for a comprehensive restructuring policy package to mitigate negative implications for domestic growth and international trading partners.

Christopher Tang, Senior Associate Dean of Global Initiatives at the University of California Los Angeles Anderson School, emphasizes the close link between the real estate crisis and Chinese consumers’ spending habits. Tang states that as home investments decline, consumer spending decreases, leading to a domino effect on production and overall economic growth. He suggests that China needs to implement new demand-side economic policies and ease market regulations.

The IMF recommends the Chinese government promote new means of investment and undertake market-oriented reforms to boost the economy. Ali Wyne, Senior Research and Advocacy Adviser for US-China at the International Crisis Group, points to local government debt and tensions with Western nations as additional factors contributing to the predicted economic downturn.

In response to these challenges, Chinese stocks experienced a tumultuous week, marking their worst performance in years despite Beijing’s efforts to restore confidence. The Shanghai Composite Index recorded a 6.2 percent drop, the most significant weekly loss since October 2018, while the Shenzhen Component Index saw an 8.1 percent decline, marking its largest drop in three years. Both indexes have lost over 8 percent and 15 percent year-to-date, respectively. The CSI 300 index, comprising major stocks listed in Shanghai and Shenzhen, also suffered a 4.6 percent decline, marking its worst week since October 2022, with a 7 percent decrease since the beginning of the year.