What China's Slowdown Means for Us All

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China's economic growth was unprecedented, but now it's experiencing a significant slowdown. The property crisis has worsened, and there isn't any meaningful recovery expected in the Chinese property market in 2024. Deflationary pressures are currently playing out, marking the deepest and longest deflation China has faced since the 1998 Asian financial crisis. The stock market has lost about $6 trillion in value over the last year and a half, and unemployment is on the rise, particularly among the youth.

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This slowdown has global implications, as China is cutting back on spending. This means fewer sales for companies like Louis Vuitton, Apple, and less Chinese investment in infrastructure abroad. Major multinational companies and ordinary people who were part of China's boom story are now facing the end of that era, which is bad news for the global economy.

To understand the full impact, it's essential to grasp how severe the situation is. Over the last two decades, China's growth seemed unstoppable. The country transformed into the world’s manufacturing powerhouse, driving double-digit GDP growth, and in 2010, it overtook Japan as the second-largest economy. Millions of farmers moved to cities, becoming factory workers and joining the growing middle class. This rise in China's middle class benefitted global brands, with companies like Volkswagen, Apple, and Estée Lauder seeing massive growth in their China-based sales.

However, during the pandemic, China adhered to a strict zero-COVID policy, leading to costly quarantines, shutdowns, and a reduction in foreign investment due to political tensions with the US. Tariffs imposed by Trump, followed by Biden's restrictions on chip technology, have hurt China's economy. Furthermore, the property crisis, fueled by excessive debt among developers and local governments, has created a massive confidence crisis. The stock market has weakened as fear spreads about the economy slowing down too much.

For young Chinese citizens, this slowdown has dramatically impacted their lives. For example, Stephanie, who once helped companies enter the Chinese market, lost her job in 2023 when her employer downsized. She's not alone—many Chinese workers have reported falling salaries, and youth unemployment is so bad that China stopped publishing the data. Fresh graduates, like Yi Shiong, are now forced to closely monitor their finances.

This shift in economic attitudes will have broader global consequences. Many companies that once depended on China for growth will now face tougher times. The Chinese tourism industry hasn't bounced back to pre-pandemic levels, and globally, fewer Chinese travelers will be spending in other countries.

Politically, the economic slowdown poses challenges for President Xi Jinping, who is seeking to solidify his position as China's most powerful leader since Mao Zedong. Historically, when the economy was booming, people were more willing to accept the Communist Party's control in exchange for prosperity. But a slowing economy risks stirring discontent. Moreover, China’s global influence may shrink as foreign spending becomes harder to justify.

China has been one of the largest investors in US treasuries, but it has already started reducing its US debt holdings. If this continues, it could become more expensive for the US government to borrow money. For now, it’s the ordinary Chinese citizens who are bearing the brunt of this economic slowdown.