Chinese economy in distress, its model is ‘broken’: report

Chinese President Xi Jinping took aim at officials for relying on borrowing for construction to expand economic activities

Chinese leader Xi Jinping has called for patience in a speech released as the ruling Communist Party tries to reverse a deepening economic slump and said Western countries are “increasingly in trouble” because of their materialism and “spiritual poverty.” File | Photo Credit: AP

China's economy, the world's second-largest, is now in deep distress and its successful model of growth for 40 years stands “broken”, a prominent American financial publication has said, noting that signs of trouble extend beyond China's dismal economic data to distant provinces.

TheWall Street Journal in a major Sunday story wrote that economists now believe China is entering an era of much slower growth, made worse by unfavourable demographics and a widening divide with the U.S. and its allies, which is jeopardising foreign investment and trade.

Rather than just a period of economic weakness, this could be the dimming of a long era, it commented.

"Now the (economic) model is broken," the financial daily said.

“We’re witnessing a gearshift in what has been the most dramatic trajectory in economic history,” Adam Tooze, a Columbia University history professor who specialises in economic crises, was quoted as saying by The Wall Street Journal.

According to the report, the total debt, including that held by various levels of government and state-owned companies, climbed to nearly 300% of China’s GDP as of 2022, surpassing U.S. levels and up from less than 200% in 2012, according to Bank for International Settlements data.

In Beijing’s corridors of power, senior officials have recognised that the growth model of past decades has reached its limits, the daily wrote.

In a blunt speech to a new generation of party leaders last year, Chinese President Xi Jinping took aim at officials for relying on borrowing for construction to expand economic activities, it added.

“Some people believe that development means investing in projects and scaling up investments,” Mr. Xi said, warning: “You can’t walk the old path with new shoes.” Mr. Xi and his team so far have done little to shift away from the country’s old growth model, the financial daily wrote.

China's gross domestic product (GDP) grew 5.5% year-on-year in the first half (H1) of 2023, the country's National Bureau of Statistics (NBS) said in June.

China's GDP reached 59.3 trillion yuan (about 8.3 trillion U.S. dollars) in the first half, according to the NBS data. In the second quarter, the country's GDP expanded 6.3% year on year, China's official media quoted the NBS as saying.

Meanwhile, China on Monday also trimmed for the second time this year its one-year loan prime rate (LPR) by 10 basis points from 3.55% to 3.45% and did not change the five-year rate, which stands at 4.20%, to revive economic growth in the world's second-largest economy after that of the United States.