There has been a drip feed of headlines all year about worrying economic data coming out of China, and this week we heard their annual growth rate won’t meet expectations and might fall below 5%. It doesn’t sound so bad but it’s actually a big step down. So in this Squiz Shortcut, we take a look at why China’s economy is slowing and what it means for China and the rest of the world.

I get we’re here because China’s economy is slowing – but where do we start?
At the beginning? Since 1978, China has been opening up its economy. That saw China’s Gross Domestic Product (GDP) – which is the value of everything a nation produces – grow by 9% a year on average.

That’s enormous…
It is, and with its population growing to 1.3 billion, it has made China the second-largest economy in the world behind the United States.

So what happened?
A little thing called COVID-19… China’s pandemic response was one of the strictest in the world – its government implemented a ‘zero COVID’ policy that saw people confined to their homes, seriously limited travel, and widescale business/manufacturing closures. And it lasted much longer than lockdowns in other countries.

Didn’t China’s lockdown only end fairly recently?
Yep, in January this year. Economists expected China’s economy to roar back after those restrictions were lifted.

But that hasn’t happened?
Nope. China’s government set a growth target of around 5% this year, which was a gasp-inducing moment. But quarterly figures out this week show that China isn’t on target to hit that mark.

Why not?
The big reason is the property market – which is central to China’s economy – hasn’t picked back up. The price of housing has kept falling over the past year.

Gimme some stats…
Well, one example is the city of Nanchang. It has a population of over 6 million people – and according to one measure, 20% of homes there are vacant. Across the country, some reports say that the vacancy rate is sitting around 12%.

So it’s all to do with the housing market?
Not quite. China’s economic woes also stem from a decline in foreign investment. Pre-pandemic, China had a reputation for being a good place to do business, but the long lockdowns and factory shutdowns changed all that.

And that saw international businesses move away from China?
Yep – for example, Apple has moved production of its iPhones to India and the production of its AirPods to Vietnam.

What does a slowing Chinese economy mean for the rest of the world?
To state the obvious, the global economy is interconnected… And if China’s massive population isn’t consuming imports/producing exports at the rate it was, the whole world will feel that impact.

How so?
Well, for one, China is the world’s largest importer of food and oil, along with other commodities. And roughly a third of Australia’s exports are bought by China.

So what could happen?
In the short term, a slowdown in China could actually reduce inflation in nations that trade most with it. That’s because the cost of Chinese goods has been dropping, which means cheaper imports from China.

What else?
China’s slowing economy is also shaking up its relationships with other nations… Relations between the US and China haven’t been great over the past few years but Chinese officials have started having meetings with their US counterparts recently.

What’s changed?
Well, some analysts have suggested China’s willingness to engage with the US is because they’re realising they need more international trade and investment as their own economy falters. It’s going to be a fascinating one to watch…

Squiz recommends:

The Economist’s podcast series on Chinese President Xi Jinping

An interactive graph from the Lowy Institute on China’s hold on global trade over the decade