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The Real Problem with China’s Economy

If Chinese savings remain at their current level (over 40% of GDP), but investment falls to 30% of GDP, China would have to maintain a current-account surplus of ten percentage points of GDP to keep its economy in equilibrium. At nearly $2 trillion, that would be enough to affect the global savings/investment balance.

MILAN – China’s ongoing economic slowdown has elicited a variety of explanations. But forecasts largely have one thing in common: while the short-term data are somewhat volatile – annual growth rates have been distorted by the legacy of the authorities’ draconian zero-COVID policy – most observers expect Chinese GDP growth to continue trending downward. The International Monetary Fund, for example, expects growth to reach just 4.5% in 2024 and fall to 3% by the end of this decade – better than most advanced economies, but a far cry from the double-digit rates of a decade ago. Yet growth is only part of the story.