A Soufflé only Rises Once: China’s Grim Economic Prospects

Abstract

Abstract After four decades of unprecedented growth, the Chinese economy faces a plethora of structural problems: The bursting of the world’s largest real estate bubble, the demographic decline and the turn to a preference for autarky are resulting in a potent mix. Solving the above-named problems will results in a prolonged phase of slow growth or even stagnation. Not tackling the issues will be even worse, for the adjustment process will eventually be even more painful. Real estate is probably the biggest issue. Too many apartments were built for too few people. The second key problem is the demography. The United Nations are suggesting that China’s population may shrink to about half its current level by 2100. Since China does not consider immigration, the aging population will be a drag on economic development and, of course, real estate. The Chinese Communist Party has engineered an economic mirage: That soufflé will only rise once.