China's Real Economic Crisis

China's economy is facing significant challenges following the abrupt end of its "zero COVID" policy in late 2022. Contrary to expectations of a swift recovery, the economy has struggled with sluggish GDP growth, declining consumer confidence, and a severe real estate crisis leading to defaults among major companies. Official data from July 2024 indicated that GDP growth was falling short of the government's target of around five percent. Analysts attribute this stagnation to several factors, including an aging population, Xi Jinping's tightening grip on the economy, and a long-standing industrial strategy that prioritizes production over consumption. This approach has resulted in structural overcapacity, where production exceeds both domestic and foreign demand, leading to price declines, insolvencies, and factory closures. The situation has also destabilized international trade, with Chinese firms flooding global markets with cheap goods, prompting concerns from Western leaders about unfair trade practices. Despite the need for a shift towards a more balanced economic model that includes increased consumption, the Chinese government remains unlikely to change its course due to its reliance on industrial output for political stability. The overcapacity issue poses long-term challenges for both China and the global economy, necessitating a nuanced understanding from Western policymakers to avoid exacerbating the situation.

- China's economy is struggling with low GDP growth and declining consumer confidence.

- The overcapacity issue stems from decades of prioritizing industrial production over consumption.

- China's industrial policies have led to significant trade imbalances and global market disruptions.

- The government is unlikely to shift its economic strategy due to its reliance on industrial output for political stability.

- Western policymakers need to understand these dynamics to avoid worsening the situation.