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China’s Economic Miracle Is Turning Into a Long Slog

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A photo of people working at a rooftop construction site in Shanghai.

 

A nationwide real-estate bust has has left many banks burdened with bad debts and many homeowners facing a decrease in their net worths.Source photograph by Qilai Shen / Bloomberg / Getty

As prices rise in the United States, they are falling in China. In the twelve months leading up to July, China’s Consumer Price Index fell by 0.3 per cent, the National Bureau of Statistics announced this week. (During the same period, consumer prices rose by 3.2 per cent in the United States.) On the face of things, lower prices are a boon for Chinese consumers. But this deflation has been accompanied by other signs of economic weakness, including a sharp slowdown in G.D.P. growth, sluggish retail sales, a fall in exports, and a renewed downturn in real-estate prices. These developments have raised fears that the world’s second-largest economy, which for many years looked like a miracle, could be descending into an extended slump. “It is a perilous moment,” Eswar Prasad, an economist and China expert at Cornell University, told me, “because of the possibility that you could have declining growth, faltering confidence, and price deflation all leading to a downward spiral and reinforcing each other.”

After growing strongly at the beginning of the year, triggered by Beijing’s abandonment of strict COVID restrictions, China’s G.D.P. expanded by just 0.8 per cent in the three months from April to June. That’s well below the Chinese government’s growth target of around five per cent for all of 2023, and it’s far, far below the double-digit rates that the economy produced in its miracle days. And yet the Chinese government has resisted calls for a big fiscal stimulus of the sort that the Biden Administration introduced at the start of its term, leaving little hope for an immediate rebound.

Many analysts attribute some of the current weakness to public concerns about Chinese authorities’ economic stewardship. Last year, Xi Jinping’s Communist Party regime did an abrupt about-face on COVID lockdowns and launched an aggressive campaign to rein in some of China’s most successful businesses, including the country’s big Internet companies. Prasad, who returned recently from a trip to China, said that some of the business leaders and academics whom he met there expressed worries about whether the government could turn the economy around.

But the larger issue is the nationwide real-estate bust, which has left many Chinese banks burdened with bad debts, and many homeowners facing decreases in their net worth. To relieve the pressures on the property market and the financial system, the government has eased some borrowing restrictions for developments, reduced some reserve requirements for banks, and cut interest rates slightly. Earlier this year, these measures appeared to be stabilizing the property market, but home prices are now falling again, and that is putting more pressure on the highly indebted developers. Earlier this week, the biggest privately owned developer in the nation, Country Garden, missed interest payments on two of its dollar-denominated bonds, raising fears of a broader meltdown.

Rising debts are nothing new in China, to be sure. Between 2007 and 2014, total private debt went from about a hundred per cent of the G.D.P. to about a hundred and eighty per cent. This rapid jump generated fears that the country might eventually experience a debt crisis in which borrowers would renege on their debts en masse, asset prices would collapse, and the economy would tank—a phenomenon sometimes referred to as a Minsky moment, in memory of the American economist who wrote extensively about financial instability and debt crises. Using a combination of policy tools, including fiscal stimulus packages, low interest rates, and currency devaluation, the Chinese authorities managed to avoid a catastrophe after 2014. But, during the past few years, real-estate and household debt, in particular, have continued to climb sharply, prompting renewed fears of a financial crash.

Prasad, who was once the head of the China division at the International Monetary Fund, said that there would almost certainly be more cases of individual property developers going bust and banks getting into trouble. But he didn’t think that a systemic financial collapse was likely. “It’s a risk,” he said. “But, after having studied China for twenty-plus years, I’ve been constantly surprised by how they’ve managed to squirm out of very difficult situations.” He added, however, that both China and the rest of the world will have to get used to a reality in which the Chinese economy grows a lot more slowly than it once did.

Although the Chinese economy still has many strengths, including a strong scientific base, plentiful savings, and a large internal market, it is now too large—according to the I.M.F., China’s G.D.P. is approaching nineteen trillion dollars—to simply expand by relying on cheap labor and ever-rising exports. Knowing this, the government is trying to engineer a shift to consumer-led growth, while simultaneously trying to reduce inequality and foster what Xi has termed “common prosperity”—all at a moment when China’s vital trading relationships with the West are threatened by rising political tensions. (Earlier this week, President Biden issued an executive order that placed new limits on American investments in Chinese high-tech companies.)

Since the Chinese economy now accounts for almost a fifth of global economic output, how it fares has important implications for other countries, including the United States. A strong China generally leads to higher prices for commodities such as oil and copper and for many other goods that the nation imports in large quantities, such as factory machinery, electrical equipment, and medical devices. A weak China could help bring down the price of gasoline and other items, but it could also depress demand and output in many other countries, with consequences that are difficult to predict.

For the past three decades, the world has been coming to terms with China’s rapid economic rise, which has enabled hundreds of millions of people to escape extreme poverty, transformed global supply chains, and upended the global strategic balance. Going forward, the world may well have to adapt to something very different: a China slowly digging itself out of an economic hole. As Steve Cochrane, the chief Asia-Pacific economist at Moody’s Analytics, told the Wall Street Journal, the former miracle economy is facing “a long slog.” ♦

 

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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