China will face a progressive slowdown in the coming years, according to data from the Crédito y Caución insurance company. The credit insurer points out, in a statement, ten factors that will affect China’s growth and sustain the scenario it foresees for the future.

The insurer recalls the average growth rate of over 9% since China opened its economy to the world at the end of the 1970s, having then become one of the world’s leading economies. Even so, given the scenario that is envisaged, Crédito y Caución points out that the Chinese average rate will be around 2.5% between 2031 and 2050.

Among the main factors that will influence the economy, the insurer points out the effects of the Covid zero policy, due to “the strict confinements of recent years and the use of less effective vaccines have left the population with little immunity”. The insurer’s report predicts that the country will need more time to stabilize the number of Covid cases that have emerged in recent months.

The real estate sector is also among the factors, since it represents 25% of bank loans. These loans have put pressure on the banks and the insurance company said that the “Administration will do whatever is necessary to avoid the collapse of the sector”, given that the “slow recovery will continue to exert pressure on economic growth for at least five years”.

The high indebtedness of local administrations and state-owned companies poses a risk to the country’s financial stability, which is one of the most obvious, as it puts a lot of pressure on China’s final accounts.

The aging of the population will also have a “profound impact on the economy”, with a shortage of labor to work, something that could even lead to an increase in the retirement age. Human capital will be another missing factor, as manufacturing is migrating to lower-wage countries and taking less-skilled workers with it.

With productivity stagnant for twelve years, this would be one of the factors to bet more on in the coming years, as well as State control over the technological sector, since China is competing with other Asian countries to attract investment.

The ever-increasing bet on self-sufficiency could be a mistake, with Crédito y Caución admitting that “dual circulation could slow down growth”. With dual circulation, China focuses on the domestic market and internal circulation, yet does not abandon export entirely. “In a period of increasing geopolitical tensions, this import substitution strategy may be understandable, but it is done at the expense of economic efficiency”, he explains.

“In addition to these internal factors, China’s economic growth will be affected by its relationship with the rest of the world. Awareness that supply chains are vulnerable has increased with the pandemic. At their height, company closures in China and elsewhere disrupted international shipping, created shortages of essential products and caused raw material prices to rise.” In this case, Chinese supply chains may be affected, as many countries want to stop being so dependent on Chinese trade, something that will affect Chinese accounts

The war with the United States, which has lasted for more than four years, is the last factor that could lead to an economic slowdown. The political rivalry between the world’s two largest economies has intensified over the last year, with the last sanctions being applied in the last month of October.

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