PIIE Predicts End Of China's Economic Miracle

As China’s exports grew early in 2023, it appeared that even the beleaguered real estate market had bottomed out.

Photo Insert: The seriousness of the problem is shown by the decline of both China’s durable goods consumption and private-sector investment rates to a fraction of their earlier levels and by the country’s surging household savings rate.

But by the end of the second quarter, GDP data told a very different story-- overall growth was weak and seemingly set on a downward trend—Adam Posen wrote in an analysis for Foreign Policy.

This reversal was more significant than a typical overly optimistic forecast missing the mark, argued Posen, president of the conservative, Washington, D.C.-based Peterson Institute for International Economics (PIIE).

He added that the seriousness of the problem is shown by the decline of both China’s durable goods consumption and private-sector investment rates to a fraction of their earlier levels and by the country’s surging household savings rate.

Those trends reflect people’s long-term decisions in the aggregate and suggest that in China, people and companies are increasingly fearful of losing access to their assets and are prioritizing short-term liquidity over investment.

That these indicators have not returned to pre-COVID, normal levels—let alone boomed after reopening as they did in the US and elsewhere—is a sign of deep problems.

It means the Chinese people have stopped spending after President Xi Jinping started reimposing state control over the economy in 2015. Household savings as a share of GDP is up 50% and are staying at that high level.

Private-sector consumption of durable goods is down by around a third versus early 2015. In short, China’s economic miracle is turning into a living nightmare.

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