Opinion: Are China's Economic Crises Cyclical Or Structural?

While China is and continues to be the manufacturing platform of the world, concerns around its decelerating growth in 2023 have triggered panic waves across the globe. Given the deep interconnection between the global economy and the Chinese economy, there is fear among nations that global growth will further decelerate due to the troubled Chinese economy. One of the most important questions in this context becomes how to tackle the fallout. To answer this question, it is first pertinent to understand whether the problem is cyclical or structural in nature. That clarity can help avoid the fallout.

In the past, China has emerged relatively unscathed from the Asian financial crisis and the global financial crisis. It even managed to somehow stay afloat until 2023, despite the US-China trade war since 2017. This gives the impression that such crises are cyclical in nature and are inherently in the DNA of the Chinese economy. Yet a closer examination would reveal that the crisis in 2023 is very different from the ones that the Chinese economy has tackled in the past and is actually structural in nature.

At a Politburo meeting in July, China's leaders referred to the economic recovery this year as "torturous". What they were referring to was China's current economic problems, which range from slowing GDP growth rates to massive unemployment, to deeply entrenched inequality, to dangerously low levels of consumption among others. The interesting point to note is that such candour is difficult to imagine from a communist party institution, let alone from such an elevated body.