Investors around the globe are increasingly worried about the state of China’s economy—the world’s second-largest economy after the United States—which has been severely impacted by rising credit levels, a slowdown in its gross domestic product (GDP), and the 澳洲幸运5官方开奖结果体彩网:ongoing trade war with the U.S.

Very few economies have grown at the rate of China’s; according to The World Bank, the growth rate of China’s economy over the past 30 years has averaged about 9% per year. However, China’s GDP growth in 2020 was 2.2%, the slowest year since 1990. Accelerating credit growth, the overvaluation of the yuan, and a frothy housing💮 market have contributed to a slowdown in the second-biggest economy𝓀 in the world.

Accelerating Credit Growth

Economists Wei Yao and Claire Huang of Société Générale consider that much of the growth in China’s economy was due to credit expansion. In an attempt to shift from an investment-based to a consumption-based economy and reverse the 25-year trend of slowing 澳洲幸运5官方开奖结果体彩网:economic growth, the Chinese government adopted an accommodative 澳洲幸运5官方开奖结果体彩网:monetary policy.

From 2016 to 2024, China’s overall debt soared from 242% to 303% of its GDP. In an attempt to alleviate its supply of debt, China has tried to increase demand by easing restrictions on market entrance for foreign investors. These efforts have achieved little success. Theoretically, when bond markets become more accessible, foreign investor demand should increase. However, there hasn’t been any data to support an increased level of investor interest in Chinese bonds.

Overvalued Currency

In addition to its credit woes, China is facing a 澳洲幸运5官方开奖结果体彩网:currency crisis. Through excessive debt creation and money printing, the 澳洲幸运5官方开奖结果体彩网:People’s Bank of China (PBOC) has created one of the largest money supplies and total banking system assets of any country. An aggressive monetary policy has led to total banking system assets of $60.59 trillion (439.52 trillion yuan) at the end of the third quarter of 2024. Fr꧙om 2010 to 2017 alone, the total assets of banking institutions in China increased by over 200%. This has contributed to an overvalued yuan.

Perhaps even more concerning are the statistics about China’s total social financing (TSF). Total social financing reflects an economy’s credit level, taking into account off-balance-sheet financing, or “shadow banking,” including initial public offerings (IPOs), loans from trust companies, and bond sales. As of January 2025, China’s total outstanding TSF was $973.2 billion. This is an indication that debt growth is 🔜accelerating via China’s shadow banking system.

Frothy Real Estate Market

After the loss of $3.2 trillion during 澳洲幸运5官方开奖结果体彩网:China’s stock market crash in 2015, the PBOC attempted to enဣcourage potential equity investors. Compared to Americans, the Chinese have historically invested more of their capital i𒈔n real estate than in the financial markets. The 2015 stock market crash reinforced that trend; Chinese direct investment in the United States that year hit a record $15.7 billion.

In 2024, the median price per square foot for real estate in China was about $238, almost 6% higher than the median price per square foot of real estate in the U.S. that year ($225), despite the fact that per-capita income in the U.S. was 1,670% higher than China in 2023, the most recent year for which annual data is available. This housing data indicates that, for a time, the Chinese continued to invest in real estate for their economic growth. Historically, 澳洲幸运5官方开奖结果体彩网:real estate has been the main driver of growth in China’s economy, accounting for a large portion of its GDP. China’s efforts to float its ho🌱using market, keeping prices rising and continuing development, might have hurt other areas of its economy.

Housing prices have been falling in China since the third quarter of 2021, according to the U.S. Federal Reserve. In May 2024, 澳洲幸运5官方开奖结果体彩网:China rolled out its str𝔍ongest measures so far to fix its broken housing market, easing mortgage rules and pushing city and local authorities to buy up unsold homes to be converted into affordable housing. Before this, policymakers tightened policies in order to crack down on speculative buying that had been prevalent since 2015. Before the downturn, housing prices were consistently rising in every major city for several years, although income level lagged.

The Bottom Line

China’s economic situation can be difficult to assess. While China has taken steps toward becoming more transparent in its financial sector, its GDP data is known to have been manipulated in the past. Some economists an🎀d analysts speculate that official data about Chinese industrial profits are also manipulated and do not reflect the true state of the economy. It’s likely that China’s economy is underperforming compared to government reports.

If China’s troubles persist, there could♈ be significant consequences for foreign trade, financial markets, and economic growth in the U.S. and around the world.