MARY LOUISE KELLY, HOST:
After three years of COVID lockdowns, China's economic recovery is floundering. Some of its biggest property firms are courting bankruptcy. Youth unemployment is at a record high. And political controls are scaring off investors. Now, China has pulled itself back from the brink before, but as NPR's Emily Feng reports, things seem different this time around.
EMILY FENG, BYLINE: The outlook in China is pretty grim right now. There's about $390 billion in debt economic analysts say developers may not be able to pay back. Small businesses are pessimistic about the future, and more than 1 in 5 young workers are unemployed. How did it get to this point?
LIQIAN REN: The three structural long-term factors that used to support China's growth.
FENG: Liqian Ren is a research director at global asset manager WisdomTree.
REN: First, local government investment. And second is real estate. Third is export.
FENG: Meaning China's relied on a fast rate of urbanization and empowered local governments to invest and take on huge amounts of debt financed by selling to developers. And they've overbuilt. China is pressuring developers now to pay off their debts, which many of them can't. And then there's a drop in exports because other countries are buying less from China due to a global downturn. This is not the first time that China's finances have looked shaky. There was also concern in the 1990s and 2000s. But at that time, annual GDP growth was almost in the double digits. Here's Houze Song, an analyst at Chicago-based think tank the Paulson Institute.
HOUZE SONG: So with that high, very strong growth rate, it is actually really easy to grow - just grow out of your problem. But compared to the early 2000s, nowadays, Chinese growth is much slower.
FENG: Some analysts forecast China's GDP growth this year to be much less - in the 4% range. And at the same time, there's less transparency about China's economy than there was 10 years ago because, as Brad Setser at the Council on Foreign Relations explains, Chinese economic data is not entirely reliable.
BRAD SETSER: It creates a persistent perception, which I think is true, that the GDP data has been smoothed out a bit. And China is not producing the underlying detail or high-quality explanations for how its data is derived.
FENG: For example, Setser says export-import data doesn't add up. Foreign exchange figures vary hugely depending on the ministry keeping track. And now they've suddenly stopped publishing certain data, including unemployment rates for those between 16 and 24 years of age after that hit a record high this July. But the overall picture is clear.
SETSER: The recovery that was expected to continue after the first quarter just didn't. And I think that is consistent across all indicators.
FENG: So now Chinese policymakers face a tricky set of choices. They've known for a long time they need to make substantive reforms, move away from construction and real estate and pump up domestic consumption. But to suddenly rein in debt and limit the easy funding that's powered growth could be dangerous.
ROSEALEA YAO: While they do this too aggressively, they could underestimate the difficulties or the challenges.
FENG: Rosealea Yao is an analyst at research firm Gavekal Dragonomics in Beijing. In other words, she says, move too fast and everyone will feel the pain. But delay for too long and the problems will only get worse. Emily Feng, NPR News, Taipei. Transcript provided by NPR, Copyright NPR.
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