China’s economy, the second-largest in the world, is facing multiple challenges as it tries to cope with a zero-Covid strategy, weakening global demand, trade tensions and a falling currency. The slowdown in China’s growth has implications for the rest of the world, especially for developing countries that rely on China’s Belt and Road Initiative (BRI) for infrastructure financing and market access.
China’s zero-Covid policy, which involves strict lockdowns and travel restrictions whenever a new outbreak occurs, has disrupted economic activity across various sectors. Manufacturing, services, retail and tourism have all suffered from reduced demand and supply bottlenecks. China’s factory activity barely expanded in September, according to a private survey, while official data showed a rebound after two months of contraction. However, some analysts doubt the accuracy and sustainability of the official figures.
China’s domestic woes have also affected its exports, which have been a key driver of its growth for decades. China’s exports grew by 8.5% year on year in April, down from 14.8% in March, as global demand weakened due to higher interest rates, inflation and geopolitical conflicts. China’s trade surplus with the US, its largest trading partner, narrowed by 6.4% in April, indicating that the trade war between the two countries is still unresolved.
One of the main challenges for China is to maintain the stability of its currency, the yuan, which has depreciated by more than 10% against the US dollar since the start of 2022. A weaker yuan makes Chinese exports cheaper and more competitive, but it also increases the cost of imports and foreign debt repayments. It also erodes investor confidence and triggers capital outflows, putting pressure on China’s foreign exchange reserves and monetary policy.
Another challenge for China is to manage the risks and opportunities of its ambitious BRI, which aims to connect Asia, Africa and Europe through a network of infrastructure projects. China has lent more than $843 billion to developing countries under the BRI since 2013, hoping to boost trade and influence along the ancient Silk Road routes. However, some of these projects have faced delays, cost overruns, environmental concerns and debt sustainability issues. Some countries have also become wary of China’s political and strategic motives behind the BRI.
The slowdown in China’s economy and global trade poses a threat to the viability and profitability of many BRI projects, especially those that depend on high volumes of trade and transit fees to repay their loans. Some countries may seek debt relief or renegotiation from China, while others may reconsider their participation in the BRI altogether. China may also face competition from other countries or regions that offer alternative sources of infrastructure financing and market access.
China’s economic slowdown is not only a domestic problem but also a global one. It affects the prospects and stability of many countries that are linked to China through trade, investment and geopolitics. How China responds to its challenges will have significant implications for the future of global trade and development.
