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China’s importance for the global economy is immense; its growth and consumption of its population should drive the global economy for the years to come. “However, disillusionment is now setting in, domestic problems join growing resistance to the business model of the People’s Republic”, says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. But even if the outlook is no longer that good: Without China, not much works.

At the beginning of 2023, Experts still expected a strong recovery of the Chinese economy. “The Chinese government changed its Covid strategy, lockdowns became a story of the past”, says Gerlinger. “Thereby, it became obvious that a big demand to catch-up would unfold.” The easing of supply chains and thus the resumption of production at many locations should also fuel the economy.

The assumption that the domestic economy of China would benefit the most, nurtured hopes. “Mobility, consumption but also the real estate sector should have benefited, according to the experts”, says Gerlinger. But things turned out differently.

By now, China is seen as an increasing risk to global growth. “Two strong streams collide here”, says Gerlinger. “For example, the strong dependence of many countries on Chinese goods and raw materials is meanwhile reduced actively.” This caters for more competition and for initially fewer orders to Chinese companies.

On the other hand, the Chinese leadership has not yet managed to revive the domestic economy. This is mainly because there are not enough jobs available for the number of inhabitants. “Youth unemployment is estimated at around twenty percent, ten million university graduates are said to be without a job”, says Gerlinger. In addition, the crisis in the real estate sector has not yet been resolved. The aftershocks caused by the payment difficulties of Evergrande Group are present over and over again – also putting pressure on private consumption.

“Many private households still have to repay large loans”, Gerlinger said. “Wages as well as savings float more into the compensation of losses than into consumption.” The real estate sector, so important for the Chinese economy, is still far from recovery. Also here, calls for the government to absorb losses and kick-start the economy again are full-throated. This is thus also important, because, the price level of western industrialised countries, currently stagnates and that without countersteering thus deflation could be imminent.

“Nevertheless, China still shows economic growth that is higher than in most industrialised nations”, says Gerlinger. “And without China, many dreams of self-sufficiency will remain dreams.” So, China is still the locomotive of the world economy. It may be limping a bit, but it is still pulling.