From: imbibe@mindspring.com   
      
   China’s Fading Recovery Reveals Deeper Economic Struggles   
   By Stella Yifan Xie and Jason Douglas, May 30, 2023, WSJ   
   China’s era of rapid growth is over. Its recovery from zero-Covid is   
   stalling. And now the country is facing deep, structural problems in its   
   economy.   
      
   The outlook was better just a few months ago, after Beijing lifted its   
   draconian Covid-19 controls, setting off a flurry of spending as people ate   
   out and splurged on travel.   
      
   But as the sugar high of the reopening wears off, underlying problems in   
   China’s economy that have been building for years are reasserting themselves.   
      
   The property boom and govt overinvestment that fueled growth for over a decade   
   have ended. Enormous debts are crippling households and local govts. Some   
   families, worried about the future, are hoarding cash.   
      
   Chinese leader Xi Jinping’s crackdowns on private enterprise have   
   discouraged risk-taking, while deteriorating relations with the    
   est—exemplified by a new campaign against international due-diligence and   
   consulting firms—are stifling foreign    
   investment.   
      
   Economists say these worsening structural problems are hobbling China’s   
   chances of extending the growth miracle that transformed it into a rival to   
   the U.S. for global power and influence.   
      
   Instead of expanding at 6% to 8% a year as was common in the past, China might   
   soon be heading toward growth of 2% or 3%, some economists say. An aging   
   population and shrinking workforce compound its difficulties.   
      
   China could drive less global growth this year and beyond than many business   
   leaders expected, making the country less important for some foreign   
   companies, and less likely to significantly surpass the U.S. as the world’s   
   biggest economy.   
      
   “The disappointing recovery today really suggests that some of the   
   structural drags are already in play,” said Frederic Neumann, chief Asia   
   economist at HSBC.   
      
   China’s economy expanded at an annual rate of 4.5% in the first quarter,   
   boosted by the end of Covid-era restrictions.   
      
   Yet more recent signals suggest the revival is ebbing. Retail sales rose 0.5%   
   in April compared with March. A bundle of data on factory output, exports and   
   investment came in much weaker than economists were expecting.   
      
   Over 1/5 of Chinese youths aged 16-24 were unemployed in April. E-commerce   
   companies Alibaba and JD.com reported lackluster first-quarter earnings. Hong   
   Kong’s Hang Seng Index, dominated by Chinese companies, is down 5.2% year to   
   date, and the yuan has    
   weakened against the U.S. dollar.   
      
   Most economists don’t expect China’s problems to lead to recession, or   
   derail the government’s growth target of around 5% this year, which is   
   widely seen as easily achievable given how weak the economy was last year.   
      
   McDonald’s and Starbucks have said they are opening hundreds of new   
   restaurants in China, while retailers including Ralph Lauren are launching new   
   stores.   
      
   A boom in electric-vehicle production allowed China to surpass Japan as the   
   world’s largest exporter of vehicles in the first quarter. Beijing’s   
   industrial policies and China’s manufacturing prowess mean it is still   
   finding ways to succeed in some    
   major industries.   
      
   “We still have confidence in the long-term growth story of China,” said   
   Phillip Wool, head of research at Rayliant Global Advisors, an asset manager   
   with $17 billion under management. He said the country’s transition to one   
   that relies more on    
   domestic consumption instead of exports will help keep it on track.   
      
   Still, many economists are growing more worried about China’s future.   
      
   The big hope for this year was that Chinese consumers would step up spending,   
   as the main drivers of China’s past growth—investment and ex   
   orts—languish.   
      
   But while people are spending somewhat more after almost three years of tough   
   Covid-19 controls, China isn’t experiencing the kind of surge other   
   economies enjoyed when they emerged from the pandemic.   
      
   Consumer confidence is low. More important, some economists say, is that   
   Beijing hasn’t been able to meaningfully change Chinese consumers’   
   long-running propensity to save rather than spend—a response to a threadbare   
   social-safety net that means    
   families must sock away more for medical bills and other emergencies.   
      
   Chinese household consumption accounts for around 38% of annual gross domestic   
   product, according to United Nations data, compared with 68% in the U.S.    
      
   “Consumer-led growth has always been a bit of an aspirational target” for   
   China, said Louise Loo, China lead economist in Singapore at Oxford Economics,   
   a consulting firm. Now, it might be even harder to achieve, she said, given   
   how cautious Chinese    
   consumers are coming out of the pandemic.   
      
   Although Beijing is trying to make it easier to borrow this year, lending data   
   indicate households prefer to pay down debt than take on new loans.   
      
   In March, Zi Lu dipped into her dowry and paid off the remaining 1.2 million   
   yuan, equivalent to about $170,000, on her mortgage for an apartment she   
   bought in Shanghai two years ago. Working for an e-commerce retailer, she said   
   sales have been    
   underwhelming this year. Lu said she is anxious and wants to reduce her debt   
   burden.   
      
   “I’m scared of getting laid off out of the blue,” she said.   
      
   Also looming over the economy is its massive debt pile.   
      
   Between 2012-2022, China’s debt grew by $37 trillion, while the U.S. added   
   nearly $25 trillion. By June 2022, debt in China reached about $52 trillion,   
   dwarfing outstanding debt in all other emerging markets combined, according to   
   calculations by    
   Nicholas Borst, director of China research at Seafarer Capital Partners.   
      
   As of last September, total debt as a share of GDP hit 295% in China, compared   
   with 257% in the U.S., data from the Bank for International Settlements shows.   
      
   Viewing the debt buildup as a threat to financial stability, Xi has made   
   deleveraging a centerpiece of his economic policy since 2016, weighing on   
   growth.   
      
   To help deflate the country’s housing bubble, regulators imposed strict   
   borrowing limits for property developers from late 2020. Property development   
   investment fell 5.8% in the first quarter of this year despite policy efforts   
   to stem the pace of the    
   slide.   
      
      
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