China’s Economy Is Burdened by Years of Excess. Here’s How Bad It Really Is.

China’s go-go days are behind it as the world’s second-largest economy struggles with the bursting of the biggest real-estate bubble ever. Now, China’s goal of overtaking the U.S. as the world’s largest economy might take decades longer than Beijing expected—if it happens at all.

China’s economy today is burdened with excess: Millions of empty or unfinished apartment blocks, trillions of dollars in debt straining local governments and ballooning industrial production driving an export surge that is igniting trade tensions worldwide. 

China still has strengths: It dominates global manufacturing and has commanding positions in new technologies, such as electric vehicles and renewable energy. Policymakers have proven adept at handling past crises, and are readying bold new stimulus to support the economy.

Nonetheless, the scale of the excesses plaguing China’s economy underscores the perilous position Beijing finds itself in as a new trade war looms.

Historic loss of wealth

China’s property meltdown has since 2021 destroyed around $18 trillion of Chinese household wealth, according to an estimate by Barclays, eclipsing the losses suffered by Americans in the financial crash of 2008-09. That hit, along with the trauma of Beijing’s heavy-handed response to the Covid-19 pandemic, helps explain why Chinese consumers aren’t spending freely. 

China’s real estate crunch has vaporized trillions of dollars of household wealth tied up in property, equivalent to around $60,000 per household.

That is a larger loss than the fall in value in U.S. real estate from its pre-financial crisis peak to the beginning of a durable recovery some years later.

Include sinking stock markets and other assets, and the decline in U.S. household wealth during the crisis is still not as big as China’s current bust. In today’s dollars, U.S. households would have lost around $17 trillion.

The wealth destroyed in China’s real estate bust is greater than the value of all listed stocks in China…

…and is roughly the same as the country’s entire economic output in a year.

*As of October
Sources: Barclays (China's property sector); Federal Reserve Bank of St. Louis (U.S. household real estate and net worth); People's Bank of China via Macrobond (equity market); IMF (China's GDP)

Destiny deferred

China’s rapid growth meant that for years forecasters expected China to overtake the U.S. as the world’s largest economy. As recently as 2019, some forecasters were expecting China’s GDP to eclipse the U.S.’s around 2030. Today, it is the U.S. powering the global economy and China that is battling stumbling growth. Few now expect China to catch up with the U.S. before midcentury, if it manages to at all.

Lowered Expectations

China’s economy is no longer expected to overtake the U.S. economy in size until mid–century, if at all, according to some long–range forecasts.

China’s GDP as a percentage of U.S. GDP

130%

2015 forecast

120

110

2019

China surpasses U.S. in GDP

100

90

2024

80

70

60

50

40

30

20

10

0

2000

’05

’10

’15

’20

’25

’30

’35

Note: Gross domestic product in current U.S. dollars
Source: World Economic League Table, Centre for Economic and Business Research

Ticking time bomb

China is also facing demographic headwinds that will make it harder to restore its economic vigor.  China’s working-age population is shrinking, reversing the demographic dividend that powered its economic ascent.

China’s working–age population, change from a year earlier

3.5%

3.0

2.5

2.0

1.5

1.0

0.5

0

–0.5

1980

’85

’90

’95

2000

’05

’10

’15

’20