Beijing
India becomes the global investment hub with sound economic fundamentals and continued policy reforms, China’s economic woes continue to take centre-stage globally as the post-Covid recovery path has been bumpy, uneven, and a lot weaker than markets expected and policy responses have been stingy at best, according to a report on Thursday. Elevated real interest rates and guarded fiscal response are hurting growth while structural economic malaises are mounting in China. China’s excess savings paradox amid waning investment has created persistent and large macro imbalances, especially with falling current account surplus, according to the report by Emkay Global Financial Services. China’s re-opening rebound was one of the biggest market bets gone wrong in 2023, with the housing market (60 per cent of household assets) seeing the worst downturn in China’s history, dragging down growth and consumption. The report mentioned that the consequent deflationary state has compelled policies to be more growth-friendly, but fears are mounting over China staring at decades of stagnation ahead – debt deflation trap and ‘Japanification’ risks. China’s slowdown is structural, caused by the end of an unprecedented expansion in credit and investment over the past decade. Amid persistently weak domestic demand, China’s reversion to its ‘old’ growth model has also been witnessed in recent years – from the consumption-driven model back to the manufacturing and exports-based model, to rekindle growth. For the worst to be over, consumption and business sentiment and, consequently, the housing market needs substantial policy support, especially as real rates have risen meaningfully.
