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Is the Chinese Miracle Over?

From US-led “decoupling” to unfavorable demographic trends, the impact of the most-cited factors affecting China’s growth prospects is probably overstated. Instead, the recent weakness of China’s economic performance largely reflects the temporary costs of necessary policy interventions.

BEIJING – China’s economic performance over the last year has been disappointing – so much so that some observers argue that growth has already peaked, and that it is all downhill from here. But it is far too soon to write off China’s economic resilience.

As 2023 began, the lifting of draconian “zero-COVID” restrictions fueled a kind of domestic euphoria, reflected in soaring consumption. But the picture soon darkened, with the second quarter bringing declining exports, stagnating retail sales, shrinking corporate profits, local-government spending cuts, and a weakening housing sector. Chinese business confidence plummeted, and foreign businesses were spooked. In November, China recorded its first-ever quarterly deficit in foreign direct investment.

Even so, China’s economy will probably grow by at least 5% this year – a respectable rate, by international standards. More important, China’s economy still has a lot of fuel in the tank: a record-high savings rate means that it still has plenty of cheap finance for investment and innovation.