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Why Is China Stalling Out?

A mere decade ago, many observers anticipated that private businesses would soon be able to thrive in China. But that hope has been shattered, confronting the regime with a choice between abandoning its ideology-led approach and accepting a prolonged period of economic underperformance and stagnation.

WASHINGTON, DC – It has been a year since China relaxed the zero-COVID measures that had been stifling economic activity, but the country has yet to experience the rebound that policymakers and pundits anticipated. Instead, economic indicators from the past year have painted a disheartening picture.

The fallout from the massive property developer Evergrande’s 2021 collapse is far from over, and the sector continues to struggle, even after the government relaxed purchasing restrictions in cities like Guangzhou and Shanghai. China’s financial health has also declined as local-government debt has snowballed, leading Moody’s to downgrade the country’s credit outlook in December. And the Chinese consumer price index continued to fall in the last quarter of 2023, indicating a lack of domestic demand.

Compounding these problems are worries about high youth unemployment, cutbacks in public services, and salary reductions for public employees. But worst of all, private-sector confidence has eroded, threatening China’s ability to attract investment and sustain economic growth.