Craig Singleton
China’s National Bureau of Statistics reported last week that the country’s economy grew by just 5.2 percent in 2023, with the World Bank forecasting that China’s growth rate could slow even further in 2024 and 2025. Washington should capitalize on China’s economic downturn to curtail Beijing’s economic influence and technological reach, albeit without impinging upon America’s post-pandemic recovery.
Excluding the pandemic years, China’s 5.2 percent growth in 2023 was its slowest since the tumultuous period following the 1990 Tiananmen Square massacre. Even that figure may be exaggerated. China’s economic statistics are based on opaque models the late Chinese Premier Li Keqiang once referred to as “manmade” and “unreliable.”
Doubts concerning China’s economic health have mounted since Xi Jinping assumed power. Since then, Beijing has ceased reporting a range of verifiable economic indicators and has altered the methodologies used to track politically sensitive economic trends. For instance, after June 2023, Beijing stopped publishing China’s urban youth unemployment rate after it peaked at 21.3 percent. However, this month, Chinese officials claimed youth unemployment had dropped to 14.9 percent based on a new formula that excludes millions of college-aged citizens previously accounted for in China’s unemployment statistics.
For two decades, China has reportedly met or exceeded nearly all its predetermined gross domestic product (GDP) targets. To do so, China has relied on massive debt issuance to fund non-productive investments in certain sectors, such as housing and infrastructure. As a result, Chinese government debt today is more than triple the country’s GDP, well above the levels observed in many industrialized nations, such as the United States.
Compounding China’s dire economic situation is weak global demand for Chinese exports, which declined by 4.6 percent in 2023. China’s real-estate market, accounting for one-quarter of Chinese GDP, also faltered. In all, property investment contracted by 9.6 percent, new construction starts dropped by 20.4 percent, and new homes sales declined by 6 percent. China’s economic turbulence coincided with a major demographic downturn, with the population shrinking by two million last year, foreshadowing serious productivity challenges ahead.
Chinese stock market indexes also declined sharply in 2023, signaling weakened investor confidence. The blue-chip CSI 300 index plunged 11 percent. Hong Kong’s Hang Seng Index, which lists shares for many Chinese companies, declined 3.7 percent even as U.S. indexes surged.
These and other indicators suggest China’s economy is not merely slowing but potentially entering a deflationary spiral akin to Japan’s “Lost Decade” in the 1990s. In a move likely to further deter investment and stifle private-sector vitality, Xi recently vowed to show “no mercy” in cracking down on perceived corruption within China’s finance, energy, pharmaceutical, and infrastructure sectors. Having ruled out major stimulus measures, Beijing has hinted that it hopes to export its way out of the economic crisis by flooding global markets with cheap goods, including discounted electric vehicles (EVs), potentially undercutting U.S. producers in a range of industries.
China’s economic woes present a strategic opportunity for the United States. Washington should tighten its leverage over Beijing and undermine its global position in ways that do not adversely impact the U.S. economy. For starters, policymakers should consider selectively increasing tariffs and expanding other measures under Section 301 of the Trade Act of 1974, including raising the duty levied on Chinese vehicles to prevent an onslaught of cheap Chinese EVs.
Congress should also require the administration to screen, and in some cases ban, certain outbound investment to China in high-tech sectors, such as artificial intelligence, quantum computing, semiconductors, and hypersonics. The House Foreign Affairs Committee’s chairman and ranking member have proposed bipartisan legislation that would do exactly that. Meanwhile, policymakers should intensify their warnings about the heightened risks of investing in Chinese firms, particularly those entwined with China’s military, amidst increasing legislative and executive branch scrutiny.
In taking these and other actions, the United States stands to emerge stronger while China grapples with the consequences of its own misguided economic policies.
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