[News Terms] Fading Chinese Growth Engine, Rising Fear of 'Peak China'

Worst Economic Growth Rate Since the Cultural Revolution
Population Decline After 61 Years... Are Structural Limits Approaching?

[Asia Economy Reporter Hyunwoo Lee] China's economic growth rate last year recorded 3%, marking the worst performance since the Cultural Revolution in the 1970s. The reputation of the populous nation, once symbolic of abundant labor and a vast domestic market, also collapsed as the population declined for the first time in over 60 years. Signs of China, once called the "world's factory," falling into a structural low-growth trap have emerged, turning the fear of "Peak China"?the notion that China's economy will pass its peak and enter a downturn?into reality.

According to the Hong Kong South China Morning Post (SCMP) on the 18th, China's National Bureau of Statistics announced the 2022 Gross Domestic Product (GDP) growth rate was only 3.0%, significantly below the government's target of 5.5%. Although it slightly surpassed the 2.2% recorded during the COVID-19 pandemic last year, it is considered the worst economic performance since 1976 (-1.6%), the final year of the Cultural Revolution.

The population also declined for the first time in 61 years. Along with the GDP growth rate, China's National Bureau of Statistics reported that the total population at the end of last year was 1.41175 billion, a decrease of 850,000 compared to the previous year. Last year, the total number of births was 9.56 million, while deaths reached 10.41 million, resulting in an overall population decline. This is attributed to a surge in deaths due to the COVID-19 aftermath, combined with low birth rates and an aging population.

[Image source=EPA Yonhap News]

Accordingly, the so-called "Peak China" theory, which suggests that China's economy has passed its peak and entered a structural downturn, is gaining traction. The Chinese economy, which rapidly grew based on a state-led planned economy and a massive labor market, has reached structural limits due to ballooning fiscal debt and demographic issues caused by low birth rates and aging.

The Chinese government's cumulative deficit last year surged to 7.8 trillion yuan (approximately 1,440 trillion won), more than doubling from the previous year. The economy, especially the real estate market?which accounts for over 30% of GDP?has suffered a significant slump due to COVID-19 lockdown measures. Although the Chinese government is expected to launch strong economic stimulus measures to rebuild the economy in 2023, it is anticipated that overcoming the structurally caused Peak China problem will be difficult.

Overseas research institutes that once predicted China would catch up to the U.S. by 2030 have all pushed back their forecasts. The UK think tank Centre for Economics and Business Research (CEBR) initially projected China would surpass the U.S. economy by 2028 but revised this to 2037 at the end of last year. The Japan Center for Economic Research (JCER) also delayed its forecast from 2029 to 2035.

Peak China is expected to have a significant impact on the economies of China's major trading partners. If concerns over China's economic downturn grow and consumption weakens, exports to China could shrink. In particular, major trading countries such as South Korea, where exports to China account for 22.8% of total exports?the highest share?are worried about the repercussions of Peak China.