Since the early 1980s, China's economy has demonstrated outpacing growth rates, averaging over 10% per year, due to cheap labor, successful implementation of market mechanisms for regulating the economy, active attraction of foreign investment and priority development of export-oriented industry.
In a relatively short historical period, the country has gone from a closed and predominantly agrarian state to the status of a "world factory", the largest exporter and a key player in the international arena. However, the gradual exhaustion of the effect of reforms and a number of external factors by the early 2010s. The structural problems of the Chinese economy have been exposed, including a general slowdown in production growth, dependence on exports and foreign technologies, a high savings rate, uneven development of regions, social stratification, an increase in the external debt of corporations and provinces, as well as an increase in wages, outstripping labor productivity growth. As a result, the dynamics of China's real GDP slowed from 10.6% in 2010 to 6.0% in 2020, while the country's government gradually abandoned the export-oriented economic model in favor of developing the domestic market.
The key factor determining China's economic growth in 2020-2022 was the COVID-19 pandemic. The measures taken by the government at the initial stage of the fight against coronavirus to support the economy allowed the country to avoid a recession, however, a reduction in consumer activity under quarantine restrictions led to a decrease in real GDP growth to 2.2% in 2020. In 2021, the rapid recovery of the Chinese economy was noted, and the growth rate of China's real GDP exceeded the pre-pandemic indicators, amounting to 8.4% against the background of temporary normalization of consumer activity, as well as due to the development of the e-commerce sector. However, in 2022, the country's economy once again faced a number of serious internal and external challenges: due to restrictive measures to combat numerous outbreaks of COVID-19 and growing problems in the real estate market, China's real GDP growth rate decreased to 3.0%.
The abandonment of the zero tolerance policy for COVID-19 and the lifting of most epidemiological restrictions in 2023 led to an increase in real GDP growth, primarily due to the effect of deferred demand. At the end of the year, growth was 5.2%, which is in line with the Chinese government's targets, but significantly lower than the annual average values that the country demonstrated before the outbreak of the pandemic. The moderate GDP growth rates by Chinese standards are explained by the limited impact of the deferred demand effect in the context of extremely high savings levels and the worsening crisis in the real estate sector. In addition, youth unemployment has reached record levels (more than 20%), due to the effects of the pandemic, as well as the imbalance of supply and demand in the labor market.
In March 2024, the Chinese government announced its intention to maintain GDP growth rates at least 5% per year. At the same time, achieving the target will be complicated not only by the crisis in the real estate market, but also by the high base of 2023, when the planned values were achieved due to the rapid recovery of the economy after prolonged quarantine restrictions. According to IMF forecasts, China's real GDP growth in 2024 will amount to 4.6% and will continue to decline amid the structural restructuring of the country's economy. The key objective of the Chinese government in the medium term is to increase the capacity of the domestic market by increasing consumer demand in all sectors.
Deflationary pressure continues to increase in China: consumer prices have been rising quite slowly in recent years, which is evidence of weak domestic demand and uneven economic recovery. Another important factor constraining inflation is the Chinese government's policy aimed at preventing price increases and related potential social tensions. In 2020-2022. economic uncertainty in the context of COVID-19 and the crisis in the real estate market have led to a rapid increase in savings among consumers, as well as a decrease in investment in the private sector. The lowest values of the consumer price index in annual terms occurred in 2021 and 2023 — 0.9% and 0.7%, respectively. At the same time, the People's Bank of China is pursuing a soft monetary policy in order to stimulate economic growth and domestic demand. However, its success at the moment has a limited effect, since consumer demand is restrained, first of all, by factors not directly related to the availability of loans, the exchange rate of the national currency and the price environment.
