Chinese Recession 2016: Examining Its Impact on the Markets

Examining China Recession in 2016:

Editor: Vladimir Bajic | Tactical Investor

Chinese Recession  2016: Economic Downturn and Its Implications

Updated May 2023

There was a time China was building the right wealth: factories that produced competitive products and bridges and roads to connect cities and towns. However, after 2008 China’s growth model shifted. It began building excess industrial capacity and investing in unproductive sectors like real estate and infrastructure. This shift prioritized quantity over quality, focusing on achieving high GDP growth at all costs through massive investment and construction projects. Between 2008 and 2015, China’s investment as a percentage of GDP increased from 42% to over 50%.

The government poured money into state-owned enterprises and funded massive infrastructure projects, many underutilized or unnecessary. Local governments also took on huge debts to fund construction booms, contributing to the rapid rise in China’s overall debt levels. This unsustainable growth model, reliant on debt-fueled investment, set the stage for China’s impending economic slowdown.

Rising Debt and Property Bubble

This led to overcapacity, wasteful spending and a growing debt burden. China’s total debt climbed from around 150% of GDP in 2008 to over 300% today. The property market, which accounts for 15% of China’s economy, also shows signs of weakness. With unsold inventory piling up – reaching 65.9 million square meters in 2016 – and sales slowing, there are fears that China’s property bubble could burst, exposing the massive debts held by developers and local governments.

The property sector has been a major driver of … investment and economic growth in recent years but now faces declining demand as home prices become increasingly unaffordable for many Chinese citizens. A collapse in property prices could trigger defaults on the massive loans taken out by developers, many of which are owed to state-owned banks. This, in turn, could ripple through the financial system and further weigh on … economic activity, exacerbating China’s impending recession. The property market will be a key vulnerability to monitor as the economy slows.

Slowing Demographics

The demographic dividend resulting from a large working-age population is becoming a deficit as the population rapidly ages in many countries. The slowdown in productivity growth means economic output per worker has not increased at the same rate as in the past, further compounding the issue. Environmental problems like pollution, resource depletion, and climate change threaten to derail economic progress.

China’s experience highlights these challenges. As China’s working-age population peaked in 2012 and began declining, the country lost a major advantage it had enjoyed for decades – a surplus of young workers. This decline will continue, with China’s population projected to shrink in 2027. An ageing workforce means China will have relatively fewer young labourers and consumers but more retirees needing support. The ageing population will also strain China’s pension and healthcare systems.

Meanwhile, China’s productivity growth has slowed in recent years. Many analysts attribute this to China’s overreliance on investment and exports for economic growth at the expense of innovation and an emphasis on higher value-added industries. China also faces severe environmental issues that threaten to undermine its economic model, like air pollution, water scarcity, and soil contamination. The demographic dividend China enjoyed for so long is turning into a deficit, and without changes to its economic model, China’s potential growth rate will likely continue slowing in the coming decades. The experiences of countries like China serve as a warning for other nations as populations age and environmental pressures mount.

Chinese Recession 2016: Implications of an Economic Slowdown

China’s economic growth has been driven by heavy investment in infrastructure, real estate and industrial capacity fueled by a rapid rise in debt over the past decade. However, there are signs this investment-led model is reaching its limits. Property investment and construction activity have slowed significantly, indicating overcapacity in these sectors.

Manufacturing and export growth have also decelerated as China faces rising labour costs, trade tensions and a maturing technology cycle.

Transitioning to a Consumption and Innovation-Driven Economy

The service sector, while growing, remains relatively underdeveloped compared to China’s large manufacturing base. The government is aware more consumption and innovation-driven growth is needed, but reforms to encourage this have been slow.

China’s debt levels, especially corporate debt, have risen sharply to support investment. However, higher debt servicing costs and rising defaults indicate that debt-fueled growth is becoming unsustainable. The government will likely need to accept slower growth and more bankruptcies and job losses as part of rebalancing the economy.

A sharp economic downturn in China would have global spillover effects through various channels…[rest of text omitted]

 

This Article, Initially Published on Sep 24, 2016, Has Been Regularly Updated Throughout the Years. The Latest Update was in May 2023.

Interesting Reads

Small Dogs of the Dow Strategy: Small Dogs Packing a Big Bite

Small Dogs of the Dow Strategy: Small Dogs Packing a Big Bite

 Small Dogs of the Dow Strategy: Little Stocks, Big Gains June 13, 2024  Introduction: Unleashing the Power of the Underdogs ...

Be Free & Fly: How Avoiding Debt Can Lead to Financial Freedom and Hope

Avoiding Debt Can Lead to Financial Freedom and Hope June 11, 2024 Let's dive into "How Avoiding Debt Can Lead ...
Clear Proof Millennials Are Dumbest Generation

Clear Proof Millennials Are Dumbest Generation

 The Unsettling Reality: Millennials Are The Dumbest Generation Updated June 10,  2024 Millennials, born between the early 1980s and late 1990s, ...
Inductive vs Deductive Approach

Inductive vs Deductive Approach: The Path to Massive Gains

Inductive vs Deductive Approach: The Path to Massive Gains June 09, 2024  Introduction: Inductive vs Deductive Approach in Investing In ...
How Can You Tell Fake News Stories from Real Ones? Using Common Sense

How Can You Tell Fake News Stories from Real Ones? Using Common Sense

How Can You Tell Fake News Stories from Real Ones? In today's digital age, fake news runs rampant, making it ...
How To Deal with Social Anxiety: Unveiling Crowd Phobia

How To Deal with Social Anxiety: Unveiling Crowd Phobia

Editor: Vladimir Bajic | Tactical Investor How To Deal with Social Anxiety: Mastering the Art of Conquering Crowd Phobia June ...
Does Passive Investing Outperform the Market? Discover the Surprising Trutht

Does Passive Investing Outperform the Market? Discover the Surprising Trutht

Does Passive Investing Outperform the Market? Discover the Surprising Truth Passive investing has gained popularity recently, with many investors believing ...
Millennials Retirement Woes: Majority Have Less Than $100K in Savings

Millennials Retirement Reality: Less Than $100K in Savings

Navigating Millennials Retirement Landscape: A Bleak Financial Reality Updated May 31, 2024 Introduction Retirement planning is crucial for securing a ...
Margin of Safety Investing: The Focus Should Be the Trend

Margin of Safety Investing: The Focus Should Be the Trend

Margin of Safety Investing: Focus on Trends May 30, 2024 In the ever-changing world of investing, one concept remains steadfast: ...
stress kills

Stress Kills: Evolve or Perish

Stress Kills: Adapt or Die May  28, 2024 It is undeniable that stress can have a detrimental impact on our ...
How Did Panic Selling Affect the Stock Market? A

How Did Panic Selling Affect the Stock Market? A Tale of Financial Ruin for the Masses

How Did Panic Selling Affect the Stock Market? A Tale of Financial Ruin for the Masses Introduction:  How Did Panic ...
Which Is the Greatest Risk When Investing in Stocks? Bankruptcy

Which Is the Greatest Risk When Investing in Stocks? Bankruptcy

Which Is the Greatest Risk When Investing in Stocks?  Bankruptcy Or Crash May 28, 2024 Introduction Investing in the stock ...
Having Sex with Robots: The Future is Now

Having Sex with Robots: It’s Real and It’s Here

Having Sex with Robots: The Future is Now May 28, 2024 Introduction: The age of instant gratification, where everything is ...
People Having Sex with Robots: The Dawn of a New Erotic Era

People Having Sex with Robots: The Dawn of a New Erotic Era

People Having Sex with Robots: It's Becoming a Reality May 27, 2024 The world of human sexuality is evolving, and ...
Call Me Baby: The Sizzling Sexbot Trend

Call Me Baby: The Sizzling Sexbot Trend

Editor: Johnathan Meyers | Tactical Investor Call Me Baby: Talking Sex Dolls Revolutionizing Intimacy in China Updated May 26, 2024 ...