China’s Economy Faces Challenges as It Shifts to a New Model


China’s securities regulator has issued a notice to lawyers who handle initial public offerings (IPOs) in the country, urging them to avoid using negative terms such as “ailing”, “slowing” or “shrinking” when describing the state of the Chinese economy. Instead, they are advised to use more positive or neutral words such as “evolving”, “adjusting” or “transforming”.

The notice, which was issued by the China Securities Regulatory Commission (CSRC) on Tuesday, is seen as a move to boost market confidence and prevent panic selling amid growing concerns over China’s economic outlook. The notice also warns lawyers not to disclose any sensitive information about the companies they represent, such as their financial performance, business plans or risk factors, before they obtain approval from the CSR .

The notice comes at a time when China’s economy is facing multiple challenges, such as the impact of the Covid-19 pandemic, the crackdown on the tech sector, the debt crisis of property giant Evergrande, and the power shortages that have disrupted industrial production and supply chains. According to official data, China’s gross domestic product (GDP) grew by 7.9% year-on-year in the second quarter of 2021, down from 18.3% in the first quarter. Some analysts have lowered their forecasts for China’s GDP growth in 2021, with some expecting it to fall below 8%.

China’s Economy Faces Challenges as It Shifts to a New Model
China’s Economy Faces Challenges as It Shifts to a New Model

China’s economy is undergoing a structural transformation

Despite the slowdown, some experts argue that China’s economy is not in trouble, but rather undergoing a structural transformation from a high-speed growth model driven by investment and exports to a more balanced and sustainable one based on consumption and innovation. They point out that China’s economic fundamentals remain strong, with a large domestic market, a diversified industrial base, a resilient financial system and ample fiscal and monetary policy space .

Moreover, they suggest that China’s economic slowdown is partly intentional, as the government is pursuing long-term goals such as reducing carbon emissions, alleviating poverty, improving social welfare and enhancing national security. These goals require some trade-offs in terms of short-term growth, but they are expected to benefit China’s economy in the long run .

For instance, China has pledged to peak its carbon emissions by 2030 and achieve carbon neutrality by 2060, which means that it has to shift away from coal and other fossil fuels and invest more in renewable energy sources. This may cause some temporary disruptions and higher costs for some industries and regions, but it will also create new opportunities and markets for green development .

Similarly, China has tightened its regulation of the tech sector in recent months, imposing fines, suspending IPOs and launching antitrust probes against some of the leading internet platforms. This may hurt their profits and valuations in the short term, but it will also address some of the social and economic problems caused by their excessive market power and data collection practices, such as unfair competition, consumer rights violations, financial risks and cybersecurity threats. In addition, it will encourage more innovation and competition in the tech sector, as well as foster a more conducive environment for data security and digital sovereignty .

China’s economy still faces uncertainties and risks

However, not everyone is optimistic about China’s economic prospects. Some critics warn that China’s economy still faces many uncertainties and risks that could derail its transition to a new model. They point out that China’s growth momentum is weakening, its debt level is rising, its demographic dividend is fading and its external environment is becoming more hostile .

For example, China’s consumer spending has not recovered fully from the impact of the pandemic, as people remain cautious about their income and health prospects. The recent outbreak of the Delta variant in several provinces has also dampened consumer confidence and travel demand. Moreover, China’s household debt has increased significantly in recent years, reaching 62% of GDP in 2020 . This could limit people’s ability and willingness to spend more.

Another challenge for China’s economy is its aging population, which poses a threat to its labor supply and social security system. According to official data, China’s population grew by only 0.53% annually between 2010 and 2020, the slowest pace since the 1950s . The proportion of people aged 60 or above increased from 13.3% in 2010 to 18.7% in 2020 . This means that China will have fewer workers and more retirees in the future, which could reduce its productivity and increase its fiscal burden.

Furthermore, China’s economy is facing increasing pressure from its trade partners, especially the US, which has imposed tariffs, sanctions and restrictions on Chinese goods, services and companies over various issues, such as trade imbalances, intellectual property rights, human rights and national security. These measures have affected China’s exports, investment and technology access, as well as its geopolitical influence and reputation. Although China and the US have resumed high-level talks recently, the prospects for a comprehensive and lasting resolution of their disputes remain uncertain .


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