How the slowdown in the Chinese economy affects global markets
The growth rate of China’s economy sharply slowed in the second quarter of 2024, reaching 4.7% compared to the same period last year . This figure was significantly below analysts' forecasts, who had expected at least 5%. For China, a country that for decades has symbolized stable and rapid economic growth, such numbers are alarming not only domestically but also on a global scale.
Modest figures and sectoral weaknesses
Although the overall performance for the first half of the year still aligns with plans (around 5%), several sectors of the economy are showing weakness. In particular, retail sales in June grew by only 2% compared to the same period last year, marking the lowest figure since the lifting of COVID restrictions. Massive sales and discount events across the country did not save the situation, indicating a deeper issue—consumer demand restraint. The Chinese model of domestic consumption, which has been the focus of the economy in recent decades, has not met expectations.
Serious challenges have also emerged in the real estate sector. Prices for new and secondary housing continue to decline, and investment in construction has decreased by 10%. The price drop has been especially painful for developers, many of whom are offering significant discounts to buyers, but even this is not preventing losses. This downturn reflects long-term structural problems in the sector, which until recently was one of the drivers of China’s economic growth.
Optimism in industry, but with reservations
Amid the overall picture, the industrial sector stands out, showing growth of 5.3% in June. China continues to increase production, and many enterprises are focused on exports. However, another threat arises here—international pressure. The U.S. and the European Union are actively imposing tariffs on Chinese goods, which could significantly limit the country’s export capabilities despite internal production growth.
Why China avoids stimulus measures
China’s leadership demonstrates caution when it comes to economic stimulation. Unlike Western countries such as the U.S., which actively use measures like “quantitative easing” and large-scale fiscal injections, Beijing is reluctant to introduce similar policies. The reason lies in the high level of debt burden—China’s debt-to-GDP ratio has already exceeded 250%. This is higher than in many developed countries where debt economies have evolved over decades. Introducing new stimulus measures could only worsen the debt problem and create an asset bubble.
Moreover, the Chinese economy is at a turning point. Beijing is increasingly focusing on innovation and labor productivity as sources of long-term growth, avoiding short-term measures that may temporarily support demand but do not address the underlying issues.
Implications for Russia and the global economy
For Russia, China’s economic slowdown has a dual significance. On the one hand, China remains Moscow's largest trading partner, and its economic difficulties could weaken demand for Russian energy and raw materials. This is especially important given Russia's limited access to Western markets. On the other hand, if China does decide to implement stimulus measures, it could boost demand for Russian resources, particularly in the context of energy cooperation.
Additionally, the slowdown in China’s economy could lead to more severe global consequences. China is no longer just the world’s factory; it is becoming a major consumer market. A decline in the purchasing power of 1.5 billion people would have negative consequences for global economic growth, especially for developing countries whose economies depend on exports to China.
The slowdown in China’s economic growth indicates deep structural problems that China is trying to address cautiously, avoiding quick fixes in the form of financial injections. Current difficulties are not a temporary slowdown but the result of a long-term shift from export-led growth to domestic consumption, which has not yet lived up to expectations. For Russia and the world, Beijing’s economic steps will be critically important in the coming years.
Modest figures and sectoral weaknesses
Although the overall performance for the first half of the year still aligns with plans (around 5%), several sectors of the economy are showing weakness. In particular, retail sales in June grew by only 2% compared to the same period last year, marking the lowest figure since the lifting of COVID restrictions. Massive sales and discount events across the country did not save the situation, indicating a deeper issue—consumer demand restraint. The Chinese model of domestic consumption, which has been the focus of the economy in recent decades, has not met expectations.
Serious challenges have also emerged in the real estate sector. Prices for new and secondary housing continue to decline, and investment in construction has decreased by 10%. The price drop has been especially painful for developers, many of whom are offering significant discounts to buyers, but even this is not preventing losses. This downturn reflects long-term structural problems in the sector, which until recently was one of the drivers of China’s economic growth.
Optimism in industry, but with reservations
Amid the overall picture, the industrial sector stands out, showing growth of 5.3% in June. China continues to increase production, and many enterprises are focused on exports. However, another threat arises here—international pressure. The U.S. and the European Union are actively imposing tariffs on Chinese goods, which could significantly limit the country’s export capabilities despite internal production growth.
Why China avoids stimulus measures
China’s leadership demonstrates caution when it comes to economic stimulation. Unlike Western countries such as the U.S., which actively use measures like “quantitative easing” and large-scale fiscal injections, Beijing is reluctant to introduce similar policies. The reason lies in the high level of debt burden—China’s debt-to-GDP ratio has already exceeded 250%. This is higher than in many developed countries where debt economies have evolved over decades. Introducing new stimulus measures could only worsen the debt problem and create an asset bubble.
Moreover, the Chinese economy is at a turning point. Beijing is increasingly focusing on innovation and labor productivity as sources of long-term growth, avoiding short-term measures that may temporarily support demand but do not address the underlying issues.
Implications for Russia and the global economy
For Russia, China’s economic slowdown has a dual significance. On the one hand, China remains Moscow's largest trading partner, and its economic difficulties could weaken demand for Russian energy and raw materials. This is especially important given Russia's limited access to Western markets. On the other hand, if China does decide to implement stimulus measures, it could boost demand for Russian resources, particularly in the context of energy cooperation.
Additionally, the slowdown in China’s economy could lead to more severe global consequences. China is no longer just the world’s factory; it is becoming a major consumer market. A decline in the purchasing power of 1.5 billion people would have negative consequences for global economic growth, especially for developing countries whose economies depend on exports to China.
The slowdown in China’s economic growth indicates deep structural problems that China is trying to address cautiously, avoiding quick fixes in the form of financial injections. Current difficulties are not a temporary slowdown but the result of a long-term shift from export-led growth to domestic consumption, which has not yet lived up to expectations. For Russia and the world, Beijing’s economic steps will be critically important in the coming years.
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