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cross-posted from: https://mander.xyz/post/55134497

Op-ed by Ruchir Sharma, Head of International business at Rockefeller Capital Management, an asset management company.

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Though many forecasters keep expecting China to surpass the US as the world’s leading economy, its growth peaked in 2021. Since then, China’s share of global GDP has fallen in nominal terms from 18 to 16.5 per cent, while the US share has risen to 26 per cent. China’s growth rate has dropped below the rest of the world, including the US. In real terms, independent estimates now put China’s growth in real terms closer to zero than to the official target of 4.5 to 5 per cent.

Even by the official numbers, AI is not providing a lift big enough to overcome other forces weighing on China, including its shrinking workforce, rising indebtedness, a broken property market, the revival of a meddlesome regulatory state and the resulting exodus of capital and people.

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The debt problem is partly a hangover of the great property bubble. Beijing responded to the global crisis of 2008 by pumping credit into real estate, which was the main contributor to growth in the last decade. Then the bubble popped, also in 2021.

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As property wealth shrivels so does consumer confidence, and retail sales are falling.

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Meanwhile, the government has moved on from property to pumping credit into new manufacturing industries, in effect replacing one debt bubble with another.

In late 2020, China launched a stunning regulatory crackdown on its big tech firms. Now, after retreating for a couple of years, an index tracking regulatory pressure is surging again. Giving up on making money in China, multinationals are scaling back operations. Net foreign direct investment is negative. Last year a record $425bn in capital flowed out of Chinese financial markets.

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People are leaving as well. The immigrant share of the population is stuck at just 0.1 per cent, a fraction of the share in India (which is just as populous). The number of western expats living in China has fallen markedly. It is historically unusual for a major power to have so little allure for foreigners and foreign money.

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The growing hype around Chinese AI doesn’t change the fact that 2021 was peak China. Given its demographic challenges and heavy debts, Beijing can’t do much to prop up domestic growth. It has shifted instead to dumping manufactured exports, but the resulting backlash is spreading fast. And AI isn’t a fix for everything. Its impressive powers may be the answer to many problems, but they can’t reverse the forces driving China’s decline.

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  • Sepia@mander.xyzOP
    1·
    27 days ago

    @wendigolibre@lemmy.zip

    In the US, it’s all being funneled into the pockets of a few people at the expense of the health and well being of the majority. I can’t comment on the situation in China …

    • Since 1978, China has transformed from a poor, relatively equal society to a leading global economy with levels of inequality surpassing much of Europe and resembling the U.S.
    • The state-owned (vs. privately-owned) share of China’s wealth fell from 70% to about 30%, compared to 0% in the U.S. (adjusted for debt).
    • The share of China’s national income earned by the top 10% of the population has increased from 27% in 1978 to 41% in 2015, nearing the U.S.’s 45% and surpassing France’s 32%.
    • Similarly, the wealth share of the top 10% of the population reached 67%, close to the U.S.’s 72% and higher than France’s 50%.

    [Source]

    The linked study could be updated with actual numbers that show inequality in China has widened since the study has been published,

    The economic reforms initiated in China after 1978 initially reduced inequality in the country because the measures were focused on agriculture (particularly in rural areas) and in creating special economic zones (such as Shenzhen in the South) - and these were exactly the regions that witnessed slower growth in the period from 1950 to 1980.

    When the coastal development strategy was initiated in the mid-1980s, inequality began to rise in China, because these coastal regions (and river delta regions) tended to grow faster compared to the other regions, thereby creating a trend of rising regional inequality that principally lasts to this day.

    Today, around 20% of Chinese people are living in these coastal areas, and 33% of China’s GDP can be attributed there.

    Today the level of inequality in China is almost equal to the of the U.S. by all comparative standards. In the mid-1980s, for example, the 1% richest Chinese owned 15% of the country’s wealth (when the share in the U.S. was 25%). In 2024, the 1% of richest Chinese owned more than 30% of the country’s wealth (U.S. it was 35%).

    Today, both China and the U.S. show inequality levels far beyond European states, Canada, Australia, New Zealand, Japan, and practically all other democratically-governed countries.

    You can play around yourself if you want to using the World Inequality Database. Here is the link for China: https://wid.world/country/china/