How China’s Economic Woes Reshape Global Trade Dynamics

How China’s Economic Woes Reshape Global Trade Dynamics
How China’s Economic Woes Reshape Global Trade Dynamics

The name China brings one word to our minds- Economy! That’s because China’s economy has always been in the limelight due to several reasons.

China's economic ascent from the late 20th century until the global financial crisis of 2008 is nothing short of remarkable. In the late 1970s, China embarked on a series of economic reforms under the leadership of Deng Xiaoping, transitioning from a centrally planned economy to a more market-oriented one.

This shift unleashed a wave of transformative changes that catapulted China into becoming the world's factory.

A surge in exports, massive infrastructure development, and a burgeoning consumer market resulted in the annual GDP growth rates consistently exceeding 9%, with some years witnessing double-digit growth.

The skylines of Chinese cities transformed at an unprecedented pace, with towering skyscrapers symbolizing the nation's economic prowess. The world marveled at China's ability to lift hundreds of millions of people out of poverty while becoming an integral player in international trade.

That brings us to the main crux of the article, where we will discuss how the current crisis in Chain’s economy is impacting international trade.

Growth Rate of Real Gross Domestic Product (GDP) In China From 2012 to 2022 With Forecasts Until 2028
Growth Rate of Real Gross Domestic Product (GDP) In China From 2012 to 2022 With Forecasts Until 2028

The Beginning of the Economic Crisis

While the Chinese economy was flourishing till 2008, that year gave a huge setback to the economy of the whole world as well as China.

Post-2008, China faced a series of economic challenges that contributed to a slowdown in its once-explosive growth.

One major issue was the aftermath of the global financial crisis, where China's export-dependent economy felt the impact.

As the demand worldwide fell, China’s twin growth factors- FDI & exports, both fell to 36.5% and 2.2% respectively during this period. It is here, that China realized its huge dependence on foreign countries and their markets.

Skipping ten years later, this economic cancer kept growing due to different reasons like failed economic policies, booming real estate sector, pandemic restrictions, diversification of businesses around the world, unemployment & many more factors which have now crippled the Chinese economy.

Let’s see in depth about all these economic woes that are shaking the base of this huge economy.

China's Economic Woes

Effects of China's Economic Crisis on Other Countries

China's Economic Woes

Demographic Crisis

China is grappling with a demographic decline characterized by an aging population and a shrinking workforce. As a consequence of the long-standing one-child policy, implemented from 1979 to 2015, the proportion of elderly citizens has surged.

According to data, the percentage of China's population aged 60 and above reached 18.7% in 2020. To address this challenge, the Chinese government has implemented a two-child policy since 2016, aiming to boost the birth rate. Despite this policy shift, the impact of decades of population control measures is expected to persist resulting in declining domestic savings and investments.

Soaring Local Government Debt

After the 2008 crisis, China decided to move from an export-led growth strategy to local infrastructure-led growth. As a result, the Chinese officials unveiled a four trillion yuan ($586 billion) fiscal package.

But the initiatives, which were centered on government-sponsored infrastructure projects, also brought about an unprecedented increase in credit and a huge rise in local government loans.

In a similar situation now, due to the huge expenditure that the local governments had to incur for recurrent lockdowns, mass testing, and setting up quarantine facilities for implementing the Zero-Covid policy, the government coffers have once again drained resulting in high local government debt.

China’s overall debt, public and private including all sectors of the economy, has piled up to $51.9 trillion, almost three times China’s GDP.

The Property Market Crisis

For many years, China's economy relied on its expanding real estate market, which was supported by population growth. For China's expanding middle class, the property market was a source of employment and they were highly optimistic about it & poured all their savings into it. However, due to several factors including stricter government regulations, the real estate prices declined.

China’s two major real estate developers, Country Garden, and China Evergrande have reported huge losses of billions of dollars leading the public into a state of panic and distrust.


Deflation has cropped up as a resultant major issue in the Chinese economy.

By the end of 2020, the Chinese economy saw a major deflation due to a fall in the prices of pork, which forms a major portion of China’s meat consumption.

Falling exports, zero-Covid policy, slowdown in property and banking sectors, unemployment, demographic crisis, and many other factors have joined hands in causing a situation of deflation in the economy.

All this said, do the other countries need to worry about this current crisis in China?

The next section explains how other parts of the world might be affected due Chinese economic crisis.

China’s Rising National Debt Crisis
National debt refers to the outstanding financial obligation of a particular country and what the central government owes to its creditors.

Effects of China's Economic Crisis on Other Countries

Global Supply Chain Disruptions

China is pivotal in the global supply chain, particularly in manufacturing and exports. An economic crisis in China is very likely to disrupt the production and supply of goods, affecting industries worldwide. Reports say that China's overall share of global goods exports was 14.4% in 2022 and as a result, interruptions in this could lead to shortages and increased production costs.

Reduced Global Demand

China is a major consumer of goods and services from around the world.

A slowdown in the Chinese economy would likely result in decreased demand for imports, affecting economies heavily reliant on exporting to China. Reports say that imports into China had dropped by 7.3% in 2023.

Industries such as commodities, luxury goods, and technology could experience a decline in sales and revenues.

Financial Market Volatility

Given its significant position in the global economy, any signs of a financial crisis in China may lead to increased volatility in international stock markets.

Investors worldwide may react to uncertainties in China by adjusting their portfolios, impacting global financial stability. Also, a weakened Chinese economy might lead to fluctuations in currency exchange rates & trade balance.

Impact of Deflation

Among all this crisis, there is a silver lining too. The crisis in China has the potential to drag down global oil prices. Also, deflation in China will reflect in lower prices of goods that are being exported benefitting many other countries.

Deflation is Amplifying China’s Economic Woes

Impact on Developing Economies

Many developing economies heavily depend on China as a trading partner and a source of investment.

A downturn in the Chinese economy could lead to reduced demand for commodities, affecting countries that export raw materials to China.

Countries receiving Chinese investments for infrastructure projects may also face challenges if China's economic crisis results in reduced overseas investments.


In today’s globalized world, we cannot deny that such an economic crisis in one country or part of the world will definitely have a spillover effect worldwide. This makes it mandatory for us to keep a watch on all the global events & be adequately prepared for any such spillover effect.


Is China going through an economic crisis?

China, the world's second-largest economy, is currently experiencing its most significant economic downturn. Over the past couple of years, it seems that the rate of economic growth has been nearly halved.

What is China's overall debt?

China's overall debt is around $51.9 trillion almost three times China’s GDP.

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