PremiumChina’s GDP grew just 3% in 2022, the slowest rate since 1976, barring the 2.2% rate registered in the initial pandemic year of 2020. The growth missed Beijing’s official growth target, which at 5.5 per cent was already the lowest in decades. India would have grown at least three times as fast. Should India or western commentariat feel complacent or gloat? Hardly. Slowing China impacts world growth and, through that, India’s own growth.
A China slowdown is bad news for the global economy. Fast-growing China imports key commodities, manufactured goods and services not just the rich world but also from a host of developing countries in Africa, Latin America and Oceania, increasing prosperity there. In 2022, China’s goods exports amounted to $3,504.9 billion, a figure a larger than India’s GDP. And it imported goods worth 2.674.7 billion. And these economies from where China imports goods and services, pumped up with those export proceeds, import more from the rest of the world, including from India.
Deflated China growth would reduce China’s imports from the economies that are also export destinations for India. India’s GDP growth has been affected by lower net exports, the difference between exports and imports, which, added to consumption and investment, yields the total output of the economy.
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And why was China’s growth performance so anaemic? The primary reason was, of course, the policy of Zero Covid that led to unpredictable and prolonged lockdowns of entire towns and cities, leading to major disruption of production. Now, these lockdowns are history, with Beijing having abandoned its Zero Covid strategy.
A ham-handed crackdown on China’s overleveraged property market has contributed to the growth slowdown. These had, in a fashion unpleasantly familiar to property buyers in India, taken money upfront from customers, and used the money to start new projects, instead of completing the ones for which they had signed up customers.
In China’s peculiar structure of multi-level governance, sale of land for property developers has become a major source of revenue for local governments. These encourage reckless expansion of real estate development. Instead of giving property companies time to wind down their leverage, the Chinese government imposed sharp limits on their ability to tap credit. The sudden loss of liquidity forced several large property developers to sell their assets, depressing property values, raising fresh margin demands from lenders, adding to the liquidity pressure and the downward spiral in the property segment.
The government has stepped in to ease the sector’s liquidity crunch, but it will take time to emerge from the property mess. And, given the new, remarkable trend of population decline in China, some of the anticipated demand for real estate is unlikely to materialise. That would spell capital write-offs.
Another factor was the Chinese Communist leadership’s decision to rein in the country’s tech tycoons, who had begun to show distinct signs of overgrowing the shoe-sizes the Party deemed fit for these types. Late in October 2020, just as Ant Financial was going in for the world’s largest initial public offering worth a whopping $34 billion, China’s financial regulators had imposed restrictions on non-bank lenders’ operations and lending limits, which would take Ant a couple of years, at the least, to comply with. That pulled the rug from under Ant’s feet, presumably all six of them.
Jack Ma, the founder of Ali Baba, which created the subsidiary Ant to finance transactions on its online marketplace, gave up his position as chairman of Ali Baba, and fled to Tokyo.
Other tech companies felt the effects of the tech crackdown. China restricted the videogaming industry’s access to children, limiting the number of hours a child could play a week. It also barred certain types of games, particularly descriptions of heroes with androgynous appearance, as the Chinse government suspected the normalisation of sub-hypermasculine heroes to be a reason for China’s falling fertility rates. The tech sector lost market value, revenue and jobs.
Another reason for slow growth is weak export performance. This is what the World Bank has to say about China’s export slowdown: “The growth rate of G-7 countries, China’s main trading partners, moderated from 4.1 to 1.8 percent y/y during the first three quarters of 2022, which weighed on China’s export performance. China’s export growth in US dollar terms steadily decelerated and contracted by 0.3 percent y/y in October, despite higher export prices in US dollar terms. Yet, for the year as a whole, China’s merchandise exports grew a little over 10% in 2022."
And despite all this, China managed to grow 3%.
It is vital to understand how much additional output and income is generated by China growing 3% from its 2021 GDP, in current US dollars, of $17.7 trillion. It added $533.7 billion to its own, and the world’s, output.
To match China’s performance, the Indian economy would have to grow 16.8% from its 2021 GDP of $3.176 trillion in current US dollars, according to World Bank data. This is because the Chinese economy is 5.6 times as large as India’s. China’s ‘slow’ growth added half a trillion dollars to world output in 2022 and laid the ground for fast growth in 2023.
Mao Zedong is said to have replied, when asked about the implications of the French Revolution for the world, that it is too early to say. What can we say at this early stage of the implication of slow growth in 2022 for China’s prospects in 2023? It means that growth could be spectacular this year, especially given the low base in the form of depressed economic activity in 2022, in excess of the World Bank’s figure of 4.3% and, even, Morgan Stanley’s expectation of 5.7%.
Elsewhere in Mint
In Opinion, Rahul Jacob says forecasts of China’s manufacturing fall are foolhardy. Manish Sabharwal & Sunil Chemmankotil write on the software sector’s Antyodaya approach. Parmy Olson says Facebook’s Zuckerberg could soon face the threat of prison. Long Story narrates the breakdown of Auto Expo.