China’s economy will “muddle through” and resist slowdown, ADB says

The Chinese economy will “muddle through” and resist a housing market slowdown, according to the Asian Development Bank’s (ADB) top economist, Albert Park.

Park, who is in Australia to meet with policymakers on the status of the Asian economy, believes the volatility in China’s property industry will be handled by the government turning away from housebuilding and toward more consumer-focused industries.

Growing fears over the condition of China’s housing industry and huge property corporations such as Evergrande, which has helped sustain development in the world’s second-largest economy, have scared global markets. This has been worsened by the widespread fear of deflation.

The Reserve Bank used its six-monthly assessment of the financial sector last week to warn that stress in China’s property industry might extend to the rest of the economy, the financial system, and the rest of the globe.

The Asian Development Bank reduced its projection for the Chinese economy last month, projecting it to expand by 4.9 percent this year rather than 5%. It expects growth to slow further to 4.5 percent by 2024, but inflation will rise from 0.8 percent in 2023 to 2% the following year.

Park stated that while the property industry has historically accounted for around 2 percentage points of China’s annual growth, this is coming to an end.

He claimed that there has been undue pessimism about China and its leaders, who have demonstrated in previous decades that they can reignite growth in the face of serious challenges. Concerns that it might follow Japan’s pattern and experience a prolonged period of stagnation were unfounded.

“There has been much too much doomsaying about the Chinese economy; the most likely scenario is that they’ll muddle through to some extent,” he said.

“All of the chatter of deflation, a year of lost GDP a la Japan, I don’t think that’s going to happen,” he added.

The International Monetary Fund will present its new global economic forecast this week. In July, the fund predicted that China would grow by 5.2% this year and 4.5% in 2024.

Park predicted that the Chinese economy would slow, but the question was how much and when it would begin to reach the levels of growth often associated with wealthy nations such as Australia and the United States.

“The Chinese economy is rising slowly and steadily over time,” he remarked.

“It’s an aging society; it’s been experiencing a fairly consistent productivity decline for a decade or more, and the labor force is falling in absolute terms… These are structural factors that will result in slower growth in the future,” Park said.

Park stated that the government’s massive investment in supply-side solutions to economic slowdowns has long been a source of concern for Chinese officials.

“Even when it came to climate change, the government was more concerned with production subsidies than with persuading consumers to spend their pent-up cash on measures to cut their carbon emissions,” Park said.