HONG KONG, Sept 1 (Reuters) - China's economic growth is slowing down as policymakers try to fix a property market downturn, with troubles at major developer Country Garden in focus. Concerns are mounting over whether the world's second-largest economy is coming closer to a crunch point:
WHAT IS CAUSING CHINA’S ECONOMIC SLOWDOWN?
Unlike consumers in the West, Chinese people were left largely to fend for themselves during the COVID-19 pandemic and the revenge spending spree that some economists expected after China re-opened never took place.
Moreover, demand for Chinese exports has been softening as key trading partners have been grappling with rising living costs.
And with 70% of Chinese household wealth tied up in real estate, a big slowdown in the sector is trickling through to other parts of the economy.
THERE HAVE BEEN MAJOR CONCERNS OVER CHINA'S ECONOMY BEFORE. IS THIS TIME DIFFERENT?
Alarm bells over the economy rang during the global financial crisis in 2008-09 and during a capital outflow scare in 2015. China revived confidence then with a shock boost to infrastructure investment and by encouraging property market speculation, among other measures.
But the infrastructure upgrades have created too much debt, and the property bubble has burst, posing risks to financial stability today.
Given China's debt-fuelled investment in infrastructure and property has peaked and exports are slowing in line with the global economy, China only has one other source of demand to tinker with: household consumption.
In that sense, this slowdown is different.
Whether China bounces back largely depends on whether it can convince households to spend more and save less, and whether they will do so to such an extent that consumer demand compensates for weaknesses elsewhere in the economy.
WHY IS LOW HOUSEHOLD SPENDING A PROBLEM?
Household consumption, as a percentage of gross domestic product (GDP), was among the lowest in the world even before COVID, with economists identifying it as a key structural imbalance in an economy relying too heavily on debt-fuelled investment.
Economists blame weak domestic demand for subdued investment appetite in the private sector and for China sliding into deflation in July. If it persists, deflation could exacerbate the economic slowdown and deepen debt problems.
The imbalance between consumption and investment is deeper than Japan's before it entered its "lost decade" of stagnation in the 1990s.
WILL CHINA’S ECONOMIC SLOWDOWN GET WORSE?
Weak data readings have prompted some economists to flag the risk that China may struggle to meet its economic growth target of about 5% for 2023 without more government spending.