The forces that powered China’s growth over the past 20 years have stalled or shifted into reverse. While that hardly qualifies as good news, it’s also not a catastrophe, for China or for the rest of the world.
Slower growth combined with Xi’s increased intervention in the economy and more aggressive stance globally—including military exercises over Taiwan and raids on foreign businesses—have shined a harsher light on problems that have long worried U.S. executives and investors.
Though some have painted China’s slowdown as an existential crisis, veteran investors point to the breadth and size of the economy. “It’d be one thing if it was a depression, with GDP down 10% and people on the street complaining. But this is not that. It’s going from 8% to 4%,” says Arjun Divecha, who oversees $3.3 billion across GMO’s emerging equity strategies.
Policy makers still have options to keep the situation from turning into a systemic problem. They could roll back more of the restrictions they had implemented in recent years, including those on second-home buyers, and even force banks to provide cheaper mortgages, says Shehzad Qazi, managing director at independent research firm China Beige Book. If those efforts fail, that could be enough for Xi to reassess his aversion to household-focused stimulus.
Policy makers have vowed more clarity on regulatory measures, but it will take time to repair confidence. While it took two quarters for economic activity to stabilize and spending to start recovering in past crises, Green expects that the magnitude of shocks this time means it could take longer to see the turn—and that could mean three quarters of lackluster data ahead.