Chin's Economic Slowdown

China, the world’s second-largest economy, has experienced a noticeable slowdown in 2024, causing shifts across global markets. This slowdown, caused by a combination of internal economic challenges and shifting global dynamics, is impacting industries and economies way beyond Chinas own borders. 

Slowing Growth: Unpacking Chinas Decline:

Chinas economic growth in 2024 has been slower and weaker than many expected. After decades of rather rapid economic growth, Chinas economy is now under strain, exhausted by the aftermath of Covid-19 and the global economic environment.

• GDP Growth.
  • Chinas GDP Growth is expected to be around 4.5% for 2024, a drop compared to the usual 6%-7% seen over previous decades.
  • The slowdown can be largely seen to be because of declining domestic consumption and a declining real estate sector, which has historically been a driver of the Chinese economy.
• Real Estate Crisis.
  • China's real estate market, which accounts for nearly 30% of its GDP, has been under strain, with major developers like Evergrande facing financial collapse. 

  • New housing startups in China have declined by 15% year-on-year, while property sales are down by over 20% in key urban areas such as Beijing and Shanghai. This is rather concerning for the Chinese, as real estate and infrastructure investments have traditionally driven economic growth in China.

    Global Supply Chains:

  • China has been seen as the centre of global manufacturing and the head of global supply chains for decades. Producing almost everything from consumer electronics to pharmaceuticals.
  • Manufacturing Output:
    • Chinese manufacturing, which contributes to over 25% of global manufacturing output, has been faltering. In 2024, China’s Manufacturing Purchasing Managers Index (PMI) averaged just below the critical 50-point mark, indicating contraction. With rising labour costs and weakened demand many companies are thinking twice about their dependence on Chinese manufacturing.
  • Electronics and Tech Sector:

    • As China’s growth slows, its dominance in industries such as semiconductor manufacturing is being challenged. Nations like South Korea, Taiwan, and Japan are taking advantage on this slowdown, with investments in semiconductor production growing by over 10% year-on-year in 2024. 

      Commodity Markets: Global producers feel the impact of Chinas slowing demand:

  • With China being a huge consumer of global commodities, from oil and steel to agricultural products, the country’s economic decline is already having an effect on commodity markets, with producers worldwide feeling the pressure.
  • Oil Demand.
    • China is the world’s largest importer of crude oil, accounting for nearly 15% of global oil consumption. 

    • However, in 2024, China's oil demand is expected to grow by just 1%, down from 5% growth in 2021. 

    • This decline is impacting major oil-exporting countries like Saudi Arabia and Russia, which depend heavily on Chinese demand to stabilize their own economies.
    • Metals and Minerals:
      •  China is also the largest consumer of industrial metals, including iron ore, copper, and aluminium, which are essential for infrastructure and manufacturing. In 2024, China’s steel production fell by 7%, reflecting weaker demand from construction and manufacturing sectors. The price of iron ore, a key input for steelmaking, dropped by 12% year-to-date, hurting producers in countries like Australia and Brazil.

    • Geopolitical and Economic Consequences:

    • Chinas economic slowdown is not an internal issue only as it has huge geopolitical ramifications. As Chinas economic dominance seems to decline, other global powers are taking the opportunity to fill the gaps both economically and politically.
    • Regional Influence in Asia:
      • China's economic strength has been the foundation of its dominance in Asia. However, its slowdown is creating opportunities for other countries in the region, mainly India.
      • With a growth rate projected at 6.3% in 2024, India is emerging as a key player in not only the global supply chains but also in geopolitics. Countries like Japan and South Korea are also benefiting from China’s slowdown, using the opportunity to strengthen their economic ties with the West.