Local governments have to deal with a debt hangover from years of profligate spending compounded by what is believed to be an 18% jump in health expenditure during COVID-19 and a 23% fall in revenue due to the real estate sector slump.
In the meantime, 2023 was supposed to be the “Year of Investing in China,” as Beijing has hailed it, but foreign investors aren’t buying it, not least because President Xi Jinping’s administration has shown every sign of being determined to make it harder to do business in China, not easier.
Following the implementation of a new counter-espionage law last month, the U.S. State Department advised Americans to reconsider travel to China due to “arbitrary enforcement of local law,” “exit bans” and “wrongful detentions.”
China’s economy grew just 0.8% in the second quarter compared with the first three months of the year, and more than a fifth of Chinese aged 16 to 24 are out of work
Open for business?
Li Qiang, China’s premier and second-highest official, has repeatedly reassured the foreign business community that China is “open for business” at the China Development Forum in March and again more recently in Tianjin at the World Economic Forum.
Reality suggests otherwise. The U.S. and China are at loggerheads over transfers of high technology and the materials used to manufacture semiconductor chips.
Meanwhile, China’s financial regulators have reportedly invited some of the world’s biggest investors to a rare symposium this week, three sources said, with the aim of encouraging investment into the world’s second largest economy.
The meeting, which is due to be held in Beijing on Friday, will focus on the current situation and challenges faced by U.S. dollar-denominated investment firms in China, Reuters reported.
“China’s decision making is as hidden from our view as it has ever been, but China’s economic weakness is obvious for all to see, even China’s leaders, which can’t help but be one source of the recent moderation in foreign policy and willingness to engage Washington,” Scott Kennedy, a China specialist at the Center for Strategic and International Studies in Washington, told the New York Times.
“The Chinese economy is clearly sputtering," said Eswar Prasad, professor of trade policy and economics at Cornell University who suggested that China required further stimulus and policy reform. The latter is unlikely to happen in any meaningful way, while Beijing has repeatedly hinted that it is unwilling to throw the kind of stimulus at the economy it has in the past.
“What we all expected was a consumption and service-led recovery. If that is sputtering, then there’s no engine left for the recovery," said Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings.
