Shanghai, China – Recent data reveals concerning news about the Chinese economy, with GDP growth slowing to 4.75 percent, a significant decrease from the robust rates seen in the previous decade. This decline serves as a wake-up call for Chinese policymakers, signaling deeper economic challenges and the obsolescence of the current growth model.

The key issue at the heart of China’s economic woes lies in its imbalanced economic structure, heavily reliant on investment, particularly in housing, and export-led growth fueled by cheap labor. Excessive investment, accounting for 42 percent of GDP, has led to overcapacity issues in manufacturing, exacerbating the reliance on foreign markets for surplus absorption.

The housing and credit market bubble in China looms large, with housing constituting 30 percent of the economy, far exceeding levels in other industrialized nations. The rapid credit expansion since 2008 raises concerns, mirroring patterns seen before economic downturns in Japan and the United States.

Evidence of the bursting bubble emerges through declining house prices, high rates of vacant properties, and defaults by major property developers. The impact spills over to the consumer sector, dampening confidence and creating a drag on economic growth.

Deteriorating demographics, fiscal challenges at the local government level, and escalating trade tensions with the United States further cloud China’s economic outlook. Declining labor force numbers, rising debts at local government levels, and looming trade barriers pose significant hurdles to sustained growth.

Suggestions from international bodies like the IMF for structural reforms to bolster household consumption remain unheeded by Chinese authorities. The lack of decisive action raises concerns about China’s ability to avert a prolonged period of economic stagnation akin to Japan’s lost decade.

The Chinese government faces a formidable task in navigating the fallout from the housing and credit market collapse. Balancing short-term liquidity injections and fiscal stimulus with long-term debt concerns presents a delicate challenge. The road ahead for China’s economy remains uncertain, with structural reforms and policy adjustments crucial for steering the nation away from a prolonged economic downturn.