China’s manufacturing and services sector both slowed in May, offering more evidence that the growth spurt early this year after the government lifted anti-COVID restrictions has not lasted.

China’s official measure of manufacturing activity fell deeper into contraction last month, registering 48.8. April’s gauge was 49.2 and economists had expected 49.7.

Readings below 50 signal shrinking business activity.

Services, which had continued to buoy the economy as factory work slowed, also lost momentum, falling to 54.5 from 56.4 in April, China’s National Bureau of Statistics reported.

TREND FORECAST: Amid the world’s slowing economy, China’s factories are not only seeing fewer orders now, but also will for the foreseeable future.

Chinese culture considers thrift a value. With the number of factory jobs shrinking, regulatory crackdowns on several industries, and government cutting spending on infrastructure, consumers will pay down debt, hoard cash, and sit tight.

Absent a wild-card development, China’s growth this year will be modest at best, although it may still reach the 5-percent goal set by Beijing.

Also, the country’s vaunted “dual circulation” economic policy that has sought to cultivate a thriving economy by combining factory exports with robust domestic consumer spending has been defeated by events and will not appear for the foreseeable future.

Again, the damage inflicted upon its economy by the government’s zero COVID policy has caused incalculable socioeconomic, mental and physical damage that will take years to reverse. 


“China’s era of rapid growth”—which began in the 1980s and continued for almost 40 years—“is over,” declared a 31 May Wall Street Journal article.

The country’s post-COVID recovery leaped to a strong start at the beginning of this year, then deflated almost as quickly as it began.

Now, in addition to a fizzled post-COVID recovery, the nation faces structural problems in its economy.

For several years before COVID arrived, the country’s stunning GDP growth was driven in large part by government spending on roads, ports, and other infrastructure.

Over the same time, real estate development—particularly in housing for the booming middle class—contributed as much as 30 percent to China’s measure of economic productivity.

Those drivers have now stalled.

Public debt now exceeds GDP and is being called a crisis in some quarters of the government. (See “China’s Not-So-Little Secret: Government Debt Exceeds GDP” 18 Apr 2023.) From 2012 through 2022, China’s government took on $37 trillion in new debt while the U.S added $25 trillion.

Last September, China’s debt reached a staggering 295 percent of GDP. In the U.S., the proportion was 257 percent, according to the Bank for International Settlements.

That massive debt load is forcing governments at all levels to pull back on lavish infrastructure projects.

The property boom crashed with the default of several major developers, prompting Beijing to put strict controls on developers’ borrowing power. We detailed China’s real estate debacle in articles such as “China’s Real Estate Market Teeters on Evergrande Debt” (21 Sep 2021) and “China’s Property Industry Faces Dramatically Different Future” (12 Apr 2022).

President Xi Jinping has mandated crackdowns on the financial and tech industries, discouraging new ventures. China’s relations with the West have soured further, in part because of its support of Russia’s war in Ukraine, a factor discouraging foreign investors.

For the first time in more than 60 years, China’s population is shrinking. At the same time, the population is aging rapidly, leaving fewer workers and resources to care for more elderly.

These factors could drop China’s average annual economic growth from the 6 or 8 percent it has enjoyed in the past to 2 or 3 percent in future years, economists told the WSJ.

Even more factors point to slower growth.

Youth employment exceeds 20 percent. Online giant Alibaba reported ho-hum sales in the first quarter. China’s stocks are in a bear market. (See “China’s Stocks Fall Into Bear Market” in this issue.)

Taken together, these changes within which the economy must operate dim China’s chances of rising to become the world’s leading economy any time soon.

“The disappointing recovery today suggests that some of the structural drags are already in play,” Frederic Neumann, HSBC’s chief Asia economist, said to the WSJ.

China’s economic productivity jumped 4.5 percent in this year’s first quarter. However, April retail sales grew just 0.5 percent in April from March. Business investment, exports, and factory output also disappointed.

In 2020, China announced a “dual circulation” economic policy, in which busy factories making export goods and a thriving consumer economy would complement each other in making China a global powerhouse.

Instead, not only has the world cut back orders to the country’s factories, but also China’s consumers have failed to indulge in post-COVID spending to the degree residents of other countries did.

Consumers’ outlook is gloomy but, more importantly, China’s government has been unable to change the country’s people into spenders, the WSJ said: thrift is built into Chinese culture.

Consumer spending accounts for only 38 percent of the country’s GDP, compared to 68 percent in the U.S., United Nations data shows.

Beijing is offering various incentives to promote household borrowing but none have made a significant difference. Households still prefer to pay off existing debts instead of larding on new ones.

However, the news is not all bad.

Economists still largely expect China to meet its 5-percent growth target this year. The country has become the world’s largest exporter of electric vehicles, which we noted in “China Becomes World’s Leading Auto Exporter” (30 May 2023). The country’s manufacturing infrastructure and industrial policies will still keep China toward the forefront of the global market for goods.

TREND FORECAST: China’s array of troubles are mounting faster than it can test solutions.

With the world’s economy slowing, as a result of its zero-COVID policy, China’s rise to world economic leadership has been sharply retarded.

However, with more countries willing to trade in its currency instead of dollars, over the long term, China still poses a formidable challenge to U.S. global dominance.

One key reason: as Gerald Celente has often said, “The business of the U.S is war. The business of China is business.”

It should also be noted that it was China that launched the COVID War in January 2020 on Chinese Lunar New Year, “The Year of the Rat.” And beyond China, as we have continually detailed, the world has changed dramatically since 2020 and will take many years to recover from the ravages of the COVID War.


In late May, MSCI’s China index, which lists a broad range of Chinese stocks, tumbled into a bear market after shedding more than 20 percent of its value since peaking in January.

Share prices jumped early this year as investors assumed China’s economy would roar back to its previous vigor after the government ended three years of anti-COVID restrictions last December.

The boom that resulted has largely flopped as the world has cut back on orders to Chinese factories and the majority of China’s own consumers remain hesitant to spend.

Business investment, consumer spending, and factory output all have failed to meet analysts’ expectations, The Wall Street Journal noted.

China’s ailment also is partly political, analysts told the WSJ. U.S.-China relations are at their worst in decades. China has announced a more aggressive stance in national defense, which means there will be less spending for other purposes, Citi analysts wrote in a 30 May note.

TREND FORECAST: Beijing has set a 5-percent target for economic growth this year, modest by Chinese standards but well above that of virtually any other developed nation.

Meeting that target depends significantly on consumers in other countries. As the world’s economy grinds down and consumers run out of savings and room on their credit cards, China’s economy will continue to droop, putting that 5-percent goal in doubt.

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