China seems to be learning a lesson from other countries, and it is doing so with remarkable diligence. China’s economy is facing a triple whammy: debt, deflation, and demographic decline are putting a heavy strain on its performance. According to Yardeni Research, the country remains reliant on exports.
The domestic real estate market has been in a free fall for 26 months in a row — it has been trapped in dire straits. New housing prices are plummeting, households have lost confidence, and retail sales are growing by a mere 3% per year — at a snail’s pace.
The People's Bank of China is desperately trying to save the situation by lowering reserve requirements and interest rates. Nevertheless, lending is weakening rapidly. The total volume of bank loans has reached a staggering $38 trillion, and the average Chinese citizen resembles a debtor who can no longer breathe under the burden of obligations.
Government bonds yield less than 2%. Amid the doom and gloom in the stock market, investors are seeking shelter in certain sectors: commodity stocks surged by 77% and healthcare stocks by 67%. Still, the broader market looks stagnant like stale water.
The government’s attempts to stimulate domestic consumption have faltered. An ageing population, soft demand, and an export-focused model that now seems outdated paint a picture of how the world's second-largest economy is struggling to reboot.
