The world is closely watching as China's once-exemplary economic growth faces unparalleled challenges. The world's second-largest economy, which relied heavily on local government and

private-sector debt for its remarkable expansion, is now confronting the bursting of its real estate bubble and a profound deceleration.

Amidst a slew of disheartening developments within a mere two-week span, apprehensions grow. July witnessed a 14.5% decline in exports, major property developers undergoing defaults and bankruptcy, and China slipping into deflationary territory.

As an indication of the severity of the situation, the Chinese government is resorting to extensive measures to veil the struggles. Economists are instructed to focus solely on positive aspects, and the National Bureau of Statistics has ceased the publication of figures concerning youth unemployment, which soared to a record-breaking 21.3% in June. On the ground in China, optimism among employers is scarce within various sectors. Lacking faith in the future, households are prioritizing savings over expenditures.

Amid the prevailing gloom, experts concur that the scenario is not reminiscent of the speculative bubble that led to the '08 Lehman Brothers crisis. Instead, the concern lies in the potential prolongation of the existing crisis, potentially ushering in a prolonged period of stagnation akin to Japan's experience after 1991.

Embracing the "New Normal"

The ongoing cyclical slowdown is coupled with a structural shift, marking the conclusion of an era marked by robust growth. China is transitioning into a phase termed the "new normal," characterized by a less vibrant economy with a declining population. The focus now rests on cultivating "high-quality" growth, emphasizing consumption and advanced technology over investment and exports.

However, steering through this transition after three decades of unbridled advancement is intricate. It notably represents the paramount economic challenge during Xi Jinping's presidency, as the current slowdown exposes the imbalances that accrued over the preceding era. Photo by ahenobarbus, Wikimedia commons.