China last year narrowly beat its economic growth target of 5 percent, one of its lowest benchmarks in decades. Looking ahead, analysts expect the economy to face stiff headwinds in the Year of the Dragon.
Against the backdrop of a crisis-stricken property market, subdued export earnings and crackdowns on private industry, international investors are pulling out of Chinese stocks at record rates.
With business sentiment faltering, economists broadly agree that Beijing needs to roll out measures to stimulate more domestic consumption.
While some analysts are calling for radical measures to jolt China’s economy, expectations are subdued owing to Beijing’s aversion to broad-based social spending.
Others see grounds for optimism beyond the current strains.
China is experiencing its longest deflationary run since the 2008 Global Financial Crisis. Consumer prices fell in January for a fourth straight month and declines look likely to extend into 2024.
“China didn’t see the boost most people expected after COVID restrictions were removed in late 2022,” Kevin P Gallagher, the director of the Boston University Global Development Policy Centre, told Al Jazeera.
“Authorities are now keenly aware of the threat of falling prices.”
Falling prices risk turning into a self-reinforcing cycle if households and businesses postpone purchases in the hope that goods will keep getting cheaper.
Deflation also squeezes debtors as the real cost of borrowed money rises.
In China, where the debt-to-GDP (gross domestic product) ratio, including local government liabilities, reached 110 percent in 2022, that poses a growing headache for policymakers.
In recent months, authorities have ramped up support measures to try and stem falling prices – mortgage rates on home purchases have been lowered and banks have been allowed to hold smaller cash reserves to spur increased lending.
China’s real-estate sector accounts for 20-30 percent of GDP [Andy Wong/AP]
Much of China’s deflationary woes can be traced back to its beleaguered real-estate sector, which accounts for 20-30 percent of GDP.
After the 2008 Global Financial Crisis, local governments encouraged a debt-fuelled construction boom to boost growth. But after decades of rapid urbanisation, housing supply has run ahead of demand.
Amid several high-profile developer defaults, including the failure of Evergrande Group, new home sales fell by 10-15 percent in China last year, according to the Fitch Ratings agency.
In turn, Chinese households have become cautious about spending money, especially on property, while a weak social safety net encourages families to save for emergencies.
In 2022, household consumption accounted for just 38 percent of China’s GDP.
By comparison, private spending made up 68 percent of the GDP in the United States that same year.
“Households ran down savings during the pandemic,” Sheana Yue, a China economist at Capital Economics, told Al Jazeera. “The real-estate crash undermined consumer confidence even further. China also has an ageing population and, typically, spending declines with age.”
The upshot is that gross national savings exceeded 40 percent in 2023, more than double the US level.
“Looking ahead, getting people to spend their savings won’t be easy. For decades, economists have encouraged the government to rebalance the economy away from investment in favour of consumption,” Yue said.
At 42 percent of GDP, China’s rate of investment dwarfs that of other emerging economies, let alone advanced economies – which average 18-20 percent. In addition to housing stock, Beijing has invested heavily in roads, bridges and train lines.
As with housing, however, years of over-investment have resulted in spare capacity. Revenues at China Railway, for instance, regularly fall short of costs. At the end of 2022, the state-backed agency was 6.11 trillion yuan ($886bn) in debt.
“We’re seeing the limitations of China’s capital-intensive infrastructure model,” Yue said.
“And given that interest rates are already quite low, Beijing will need to start stimulating consumption to generate high and stable growth.”
Yue said policymakers should remove incentives to hoard savings by spending more on education, healthcare and pension provisions.
Analysts expect the National People’s Congress, China’s rubber-stamp parliament, to again set an annual growth target of about 5 percent when it meets in March.
While many economists have exhorted Beijing to stimulate growth through household transfers, Victor Shih, an expert on the Chinese economy at the University of California, San Diego, expects investment-driven growth to continue to hold sway.
“Marxist ideology, which valorises industrial production, remains the fundamental basis for policymaking in Beijing,” Shih told Al Jazeera.
“In all likelihood, the government will continue to subsidise manufacturing. Consumption, by contrast, is viewed as indulgent.”
Shih added: “There are 1.4 billion people in China, so comprehensive social assistance would be extremely expensive, especially in a deflationary context.”
Shih said Beijing could raise household consumption by urging companies to pay higher wages but that “China’s manufacturing edge is partly based on subdued worker income”.
As such, “higher wages would undermine Chinese exports, which is an important source of output”, he said.
“I don’t think the government will shift budgetary priorities in favour of the Chinese people… which will likely result in a period of economic weakness.”
Separately, Beijing has other strategic priorities, said Gary Ng, a senior Asia Pacific economist at Natixis in Hong Kong.
“President Xi [Jinping] appears less keen on stimulating rapid growth than he is on optimising the economy for security and resilience,” Ng told Al Jazeera.
By moulding industrial policy on the basis of national security, Beijing has set its sights on reducing its reliance on foreign technology and supporting its long-term geopolitical ambitions.
At the same time, Ng said, “Beijing has shown a new willingness to invest in more consumer-facing tech sectors, like renewable energy and electric vehicles.”
“Unlike property, these industries have the capacity to create jobs and promote economic self-sufficiency,” he said.
Ng also stressed that economic transformation takes time and that “there’s no magic pill for lightning-quick growth”.
“Investment in high-tech sectors should, slowly, reform China’s economic base,” he said. “Incidentally, private consumption is already on an upward trend.”
Gallagher, of Boston University, said China’s economic growth trajectory is healthier than sometimes portrayed.
“It’s easy to forget about China’s economic development since the 1990s. Growth has slowed from high levels lately but it still tallied at 5.2 percent last year,” Gallagher said. “Forecasts are equally solid for this year.”
“Hawks have been predicting the demise of China’s growth model for decades,” Gallagher added. “It is true, however, that to build on China’s remarkable success, Beijing has to shake off its timidity about the investment-consumption pivot.”
Gallagher said 2024 is likely to underscore the urgency of reform.
“If [US presidential candidate] Donald Trump is re-elected and chooses to engage in a new trade war, Beijing will want to be more self-reliant. The Year of the Dragon could be ideal for China to step up its efforts to unleash domestic consumption.”
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 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.
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.
