As summer fast approaches, China is feeling the heat – in its economy, that is.
China has been grappling with its ailing property market by heavily depending on its manufacturing sector to drive growth via exports. Heavy subsidization means supply has outstripped demand, which has suppressed prices.
Furthermore, China’s heavy export dependence on the United States partially marries China’s growth to American consumer behavior. Negative consumer sentiment has spawned declining retail sales, effectively reducing the size of China’s export market. This is reflected in the chart below.
Finally, China’s demographic troubles might soon become economic ones. China’s share of working age population is decreasing, which will place downward pressure on housing demand and consumption. As China’s largest age group enters retirement, pension funds will only be further stressed.
Despite adverse circumstances, many experts have a positive outlook on China’s economic growth. However, these forecasts largely consider that China’s newest scheme to save its property sector will work.
Regardless of future economic performance, the United States should keep a watchful eye on China’s potential economic policy changes. The American consumer might not continue to wield such a strong influence on China’s growth if the Communist Party prescribes significant changes.
Source: Nathaniel Taplin, WSJ; Farah Master, Reuters
Reade Ben is a policy analyst at the Manhattan Institute.
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