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The Lost Superpower: Story of Chinese Slowdown

Updated: Nov 26, 2022

With the advent of the 21st century and the phenomenal growth of China in recent years, it became evident that the US might not remain the sole economic powerhouse of the world, and the centre stage would shift to Asian Tigers.

Image Graphics by Team Geostrata

Although in military terms, the US can't be beaten in the near future, in economic terms, it is popularly projected that by 2030, China will surpass the US to become the biggest economy in the world.

However, with Covid-19 spreading across the country, aggressive foreign policy, real estate crisis, failure of banks, and tense geopolitical uncertainties have highly affected the growth prospects of China. It is evident from the fact that the IMF has cut China's projected GDP growth rate to 4.4% for 2023, while in 2022, it's already hovering around 3.2%.

This article will not only analyze China's recent economic upheavals but also try to understand the long-term geopolitical factors and their implications on the country and the world in general.



Pandemic mismanagement and recurring lockdowns due to its harsh ‘Zero-Covid’ policy have highly disrupted the economic activities and supply chains for households and companies alike.

Even in 2022, China’s major cities have been in lockdown, which has been strictly enforced by the local authorities. Even a single case leads to the imposition of stringent lockdowns and strict quarantine policies. Consequently, more than 8 megacities, which make up 35% of the country’s GDP, have been in complete or partial lockdown.


The lack of confidence in the efficacy of Chinese-made vaccines, especially among older citizens, has predominantly resulted in low vaccination. For instance, only 38% of citizens above 60 are vaccinated in Shanghai. And as The Lancet has reported, vaccinating older citizens might be the key to ending the extreme lockdowns and lowering the overall Covid cases.

However, Xi Jinping seems in no mood to remove the zero-covid policy or allow foreign vaccines, especially after confirming his third term.

Therefore, little economic activity and rising uncertainty among businesses have inadvertently affected people’s livelihoods and corporations’ balance sheets alike. All of this has resulted in dwindling investor confidence, which can prove detrimental, at least in the short to medium term.


Climate change has started to adversely impact the lives of citizens in China. It is already suffering from the worst heat waves since 1961. This has resulted in severe droughts in more than 70 cities. The Yangtze river has also shrunk, causing disruption in the water and electricity supply for both households and manufacturing units.

As hydropower contributes more than 16% of electricity demand in the country and is majorly generated by rivers, there is a steep decline in power generation across the nation. Combining it with the fact that severe heat waves are leading to a spike in household energy demands, the current electricity supply could not fulfill the same. However, the problem is more rampant in cities like Shenzhen and Shanghai, where manufacturing units of major multinational companies like Tesla, GM, Apple, and Foxconn are located.

This has resulted in major power cuts in these units to fulfill the household demand in the cities, causing the companies to halt their production units indefinitely. As cities like Shanghai and Sichuan are recovering from lockdowns, this new problem has resulted in further disruption in the supply chains and production of these companies. Ultimately this affects the overall productivity of companies, which would eventually impact China’s economy and investor sentiments.


In recent years, the Chinese Communist Party has been enforcing strict policies against some of the biggest companies of China and entrepreneurs. Moreover, the recent crackdown on private companies by the Communist government and the failure of prominent corporations, including Evergrande, has worsened the situation further.

Reasons seem to be enforcing absolute authority upon the companies and telling them Who’s the real Boss! Although China adopted capitalistic notions, Ideology forms the very core pillar behind CCP’s iron rule. Amidst the rising inequalities in its model of Socialism with Chinese characteristics, Xi Jinping, aware of the growing discontent, has waged a rampant war against some corporations that were getting too big to be under CCP’s control.

It is evident from the fact that China banished Jack Ma when he gave a statement against the government’s policies. Similarly, the government’s interference in the administration of the major corporations has prompted the country’s bad reputation as an economic player. Even for foreign companies, it has become mandatory to include a Communist party’s watcher cell in its management. This unnecessary interference has put the autonomy of the companies at bay.

You see, if a person thinks that the state can at any time overtake the company and impose its policy, it highly discourages the morale of aspiring entrepreneurs and established corporations alike.


China’s real estate and banking crisis is worsening day by day. It can potentially further push the world economy at the hem of a global recession that will likely start next year. But Why? The real estate sector accounts for 1/3rd of the country’s GDP, and approximately 40% of the bank credit goes to this sector, including a whopping 70℅ of the household’s savings.

Further, the capitalization of China’s real estate sector is more than $55 trillion, which is way bigger than the US stock market itself.

The above facts reinforce that if there is any impact on the real estate sector, every component of the Chinese economy is going to suffer.

It all started with the revelation that China’s mega-corporation Evergrande, which has outstanding loans of $300 billion, is going to default, and all the money invested by the citizens for buying homes might go in vain. Other companies, such as Sunac (3rd largest real estate company), Fantasia Holdings, and Sinic Holdings Group, will also be unable to deliver homes on time. As a result, the sale of homes has already decreased by 40% this year.

As the companies were taking money from both households and banks, they were diverting a significant amount of cash to other activities, which is a perfect recipe for disaster.

As the majority of the Bank credit went to the Real estate companies, the government has implemented the 3 Redline policy, which restricts the companies in the sector from taking any further credit. So if a real estate company has a 70% debt-to-asset ratio, it is prohibited from undertaking any more debt. More than that, companies are required to maintain a 100% cap on net debt-to-equity ratio with reasonable cash in hand to meet short-term borrowings. Though the government has relaxed the policy, there is still no proof of its effectiveness on the ground.

As far as citizens are concerned, those who took home loans from banks are now defaulting on the instalments. Unsurprisingly banks are finding it hard to meet their obligations as they are falling short on money, and 2008 serves as a glaring example of how these symptoms can lead to a catastrophic financial meltdown.

For more clarity, let us look at this cycle in a bit more detail. Households collect their hard-earned savings along with taking debt to invest the sum in purchasing a home, which still remains a prized possession in all developing societies. This money then goes to the real estate companies, which in turn, take even bigger loans from the banks, which they reinvest in unrelated projects like building hotels, theme parks, etc.

However, the investments made by the companies either fail or underperform, and, hence, the debt starts becoming unsustainable. As a result, the risk moves onto the banks, and the loop continues, feeding off each other.

As fear looms over the people who have deposited their hard-earned money, the situation is getting out of control. Many depositors are trying to attack the banks to take out their money. Whereas Banks are so desperate they are asking for watermelons from the debtors as a part of the repayment of the loans. However, the Melon economy does not seem to hold the fruit in the long run.

Moreover, as the government has announced that the deposits can't be encashed as they're now automatically shifted for a further time period, people are virtually unable to take out their savings from the bank.

For Businesses, 53% of the organizations have witnessed a steep decline in their net profits, which is almost the same as what happened in 2020. The problem is further exacerbated due to incessant lockdowns.

This has, all in all, led to violence in the major Chinese cities, and the Army has been roped in to protect the banks from the protesters.


The population crisis has deeply rooted in the Chinese economy. There has been a trend that citizens are not giving birth to more than 1 child due to the ingrained culture of the One-Child Policy and the high cost of living.

The average birth rate in China is 1.7, which is too low to sustain the economy of such a huge country. Over the years, this has resulted in the aging of the entire population. Currently, the average age of citizens now ranges between 37-38 years.

Moreover, China is facing a unique problem of Gender disparity. As people want a single child, they don't prefer girls over boys, which has highly disrupted the population ratio of females in proportion to males, and now the latter is not getting brides to marry.

Therefore, the decline in the population, along with the colossal gender gap, has almost ensured that it will not rise for a long time. Mind you, it is easier to force people not to give birth, but it is even more challenging to force people to give birth. Though General Secretary Xi Jinping said in his speech at the 20th National Party congress that he would vigorously promote the 3 Child Policy, it remains to be seen what innovation they would bring in to encourage people to have more kids.

As a result, the youth who are already disgruntled due to low economic status and current economic problems, the burden of care for the elderly will shift to the younger generation. This will have a tectonic effect on the economic lifestyle of all the middle and lower-middle-income households.


The major Chinese banks are moving towards bankruptcy as companies are defaulting on their loans, along with a decrease in the confidence of depositors in the banking system. Therefore, as we saw, people are now trying to withdraw their money.

The situation is equally worse in the rural areas, where the Chinese rural banks are defaulting on their obligation and are freezing billions of value of deposits. For instance, 4 rural banks in the Henan province froze $60 billion worth of deposits in April. This was soon followed by the boycott of mortgage payments in real estate by the homeowners.

The apparent problem is that the phenomenal rise in the country's debt crisis is due to unproductive investments in the Infrastructure and real estate sectors, along with an ever-increasing overvaluation of properties. Over the years, this has outpaced the rise in the ability of the economy for debt-servicing.

Unsurprisingly, the IMF, among various international institutions, has predicted a slowdown in the world economy in 2023. Resultantly, China is set to grow at 4.4% in the next year, which is significantly lesser than what China has projected. With Chinese financial institutions and the world economy witnessing a downward trajectory in the coming years, the big hit is yet to come.


Even before the advent of the Covid-19 pandemic, Xi's China has been rapidly losing its fair reputation on several fronts, including human rights, aggression toward neighbours, a debt trap, and an aggressive foreign policy. As per the European Union Chamber of Commerce in China, 23% of European companies are planning to move their manufacturing units from China. At the same time, 50% of the companies have admitted that Business in China has become more politicized.

While recently, the US has blacklisted all its companies from buying semiconductors from China and also banned American citizens from working in the Semiconductor industry in China. This single act, along with the passing of the $280 billion CHIPS bill for boosting local semiconductor manufacturing, has crippled the entire semiconductor industry of China overnight.

Similarly, other countries are also vying to move away from China and develop policies that directly impact its economic growth. For instance, many multinational companies, including Samsung and Foxconn, are now shifting their manufacturing units outside of China to India and Vietnam in order to diversify their manufacturing base.

Apart from that, over the years, the average income of workers has increased, directly impacting the companies’ profits and production costs. The factor has made China expensive, and companies are vying for cheaper alternatives in countries like India and Vietnam.

Moreover, Xi Jinping’s aggressive foreign policy has affected the reputation of China as a global power. Resultantly, it has deteriorated its positive image as well as the charisma of stability that the Communist government provides to foreign companies.


China, in 2020, chose to unilaterally try and alter the status quo on LAC, violating its decades-old border agreements with India. Similarly, it intensified border disputes with all fronts except for Russia.

While on the eastern side, China is entangled with Japan, South Korea, the Philippines, and Taiwan over the ownership of the South China Sea and several islands. China has already made artificial islands and has illegally started claiming Exclusive Economic zones on this basis.

And as Xi Jinping is losing confidence among the citizens, China’s recent aggression towards Taiwan has made other countries warier about the government’s actions. Therefore, so many disputes with the neighbouring countries have seriously dampened the confidence of countries and companies alike when it comes to long-term partnerships.


China began its visionary BRI project in 2013 and started levying unscrupulous loans to small countries for commercially unviable infrastructure projects, that too, without analyzing the ability of that country to repay the debt that already has a high-interest rate. In a few years, by releasing over $1 trillion as loans, it became the world’s largest official creditor for the first time.

BRI has caused several countries to default on their loans, and a massive amount of the Foreign exchange reserve of China is stuck in nations like Zambia, Kenya, Sri Lanka, and Pakistan, causing it to be stuck in its own Debt trap. It is evident from the fact that more than 60% of the loans are disbursed in countries that are already in financial distress.

Resultantly, the default rates have skyrocketed over time, and China has stopped releasing more loans since 2017. As major infrastructure projects have no commercial value, the Chinese also cannot keep them as collateral.

Moreover, not a single project under BRI has successfully impacted the lives of the common people, and the Chinese are facing the wrath of domestic pressure from the citizens in these nations. For instance,

China-Pakistan Economic Corridor (CPEC) has not given substantial economic benefits to Pakistani citizens in terms of employment and business activity. Instead, their livelihood, especially in the southern part of Pakistan, has been adversely affected due to the Chinese projects.


If the situation remains the same, we might witness a significant slump in the growth trajectory of the Chinese economy. Given that under Xi’s regime, the crucial statistics have been constantly undermined, we cannot actually predict the reality of the Chinese economy.

Along similar lines, the government has recently indefinitely delayed the release of 3rd quarter’s GDP data. Moreover, with a potential economic recession brewing up on the Western Coast, this might have a snowball effect on the Chinese industries and economy.

As far as the manufacturing sector is concerned, the government has to end its zero-covid policy and bring favorable incentives for the companies to make them stay. If major corporations have started considering moving out their units from China, they must have taken into account the long-term ramifications of staying in China for the simple reason that shifting the manufacturing units is a capital-intensive task. It means China might not be as stable as it was before Mr. Xi came to power. This is ironic because he will seemingly remain the President for life, which should signify stability.

Losing confidence of companies has led to a domino effect on the unemployment situation, cost of living, and income of the citizens. And as the housing bubble is on the verge of collapse, it has already impacted the savings of poor citizens. Perhaps for the first time since Chinese independence, all the cards seem to fit for a mini, if not a complete, revolution in the country if the government does not take major steps to allay the fears of the citizens. Though Xi Jinping in the 20th National Party Congress has announced measures to improve the overall situation, the internal strife within the party and Xi’s aggressive approach tell otherwise.

And as the National Bureau of Statistics data shows, Youth unemployment in the country is at an all-time high at 19.9% and merging with the downward trend in the GDP growth, the overall unemployment is also going to touch a new high in the coming months. And given that protestors are surprisingly coming out in public to criticize the government for the first time since the 1980s, the problems of citizens have taken precedence over fear of the Communist government.

The government might also invade Taiwan to shift the focus of its citizens from these pertinent issues. On the other side of the argument, it is probable that China might show greater aggression towards India in the future because Taiwan has the backing of the US, which makes the prospect of China invading Taiwan unlikely.

Taking any of the arguments, it is clear that it will take aggressive actions toward foreign countries, which might have long-term ramifications for it.

Although the government has launched a package of $37 billion to invest in the infrastructure sector and another package of $69.5 billion as an extension of borrowing to local governments, the situation demands sending money into the hands of households directly to rebalance the economy. However, the government is doing the opposite by freezing the household savings deposited in the banks that are on the verge of going bankrupt.

All in all, from the geopolitical and economic perspective, China is not going to move out of the problems in the near future. And it remains to be seen how General Secretary Xi Jinping will take cognizance of the pressure that has already started to build on so many frontiers ranging from border disputes, supporting Russia’s invasion, losing economic prowess to trade war and the disgruntled Citizens.


China being the highest exporter of a number of essential commodities, its domestic recession will have a substantial impact on the whole world.

For instance, China is the largest exporter of Construction and Pharmaceutical materials worldwide, and if the economy is affected, it will cause a global shortage in the supply of finished commodities. Moreover, as OPEC+ has signed an agreement to decrease the global oil supply by 10%, it would further lead to an increase in the prices of essential commodities and a decrease in demand for Chinese exports.

Global inflation is already set to hit 8.8% in 2023 from 4.4% in 2021 due to a rise in global food and energy prices. This would directly impact the living standards of common households. Additionally, rising global inflation will lead to a major slump in demand, thus directly impacting the already suffering industry sector, which has the largest share in terms of GDP and employment in the Chinese economy.


China’s growth trajectory has been prolific in recent years. As we have noticed from the previous global economic recessions, it starts with the downfall of the most economically powerful country. Now, as China is arguably set to become the world’s largest economy by 2030, the stakes have risen multifold for nations when it comes to building an economic partnership with China.

Apart from that, the government’s indifference towards the companies and citizens alike has proven that it won’t come to save the seemingly too big-to-fail ventures. No accountability and intrusion into the corporation’s functioning by the party cells will be the most worrisome factor. And assuming the projection is correct, for the first time in modern history, any Party will lead the global economy.

From the analysis, the subsequent major slump in the Chinese economy and consequent global recession might come due to its receding manufacturing sector and potential invasion of Taiwan. Both factors will immensely impact the world economy on all fronts.

For the current crisis, it remains to be seen how Xi Jinping, who has been again elected as the President of the Fake Democracy Congress, will take the situation. In short, a lot will depend on the one-person brinkmanship now.




1 Comment

Harsh Rai
Harsh Rai
Nov 27, 2022

Amazing article 👍...

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