What is Happening to China's Economy?

2023 was a challenging year for China, and 2024 is not looking much better. How did we get here? Just one month into the new year, Evergrande Group has been forced to liquidate its assets. The Chinese stock market has hit five-year lows. For the first time in years, Chinese paramount leader Xi Jinping is meeting with regulators, and Chinese citizens are turning to US Embassy social media platforms seeking help. This marks a difficult beginning to 2024 for China, with still 11 months to go.

The turmoil for China began in December 2021 when Evergrande, China's largest real estate property developer, defaulted on its debt obligations. Evergrande is now being forced to liquidate $245 billion of its assets to cover its $300 billion liabilities. This has led to a significant decrease in housing values in China, severely impacting many citizens' net worth. However, the troubling economic indicators in China do not stop there.

As of earlier this week, Chinese equity indices have hit a five-year low, down 40% from their previous peak in 2021. Since this peak, Chinese equities have lost $7 trillion in value. The situation has become so dire that investors are commenting on the US Embassy's social media, asking for the US to intervene by banning hedge funds from placing sell orders and limiting trading in funds. There is hope on the horizon, though: President Xi is set to hold a meeting with Chinese regulators, with investors hoping they will unveil a plan to rescue the equity markets.

Since Xi took power in 2012, Chinese economic growth has slowed by almost 4% and is expected to continue this trend. This slowdown is attributed to the unwinding of expansive credit programs created in 2009, higher youth unemployment, low fertility rates, and an aging population. However, the situation might be worse than reported. According to a "60 Minutes" segment earlier this week, Chinese migrants have become the fastest-growing ethnic group crossing the US-Mexico border, up 50% from two years ago. Most cite oppressive politics and a slowing economy as their reasons for coming to the United States.

This situation becomes more complex when considering China's desire to reclaim Taiwan and the US's stance to defend Taiwan. We have no idea how this will unfold, but surely it will be a hot and divisive topic during the US presidential debates.