China’s Economy Is Off to a Bad Start in 2024

Welcome to Foreign Policy’s China Brief.

The highlights this week: Chinese stock markets start 2024 on bad footing, former U.S. President Donald Trump suggests the United States should not come to Taiwan’s aid in a crisis, and Houthi attacks in the Red Sea create a dilemma for Beijing.

2024 Begins With Stock Market Slide

Chinese stock markets are in sharp decline this year, driven by the fallout of the COVID-19 pandemic, government mismanagement, and a decades-long inflation of the property bubble. In January so far, mainland China’s CSI 300 Index has dropped by 6 percent, the Shanghai Composite Index has dropped by 7 percent, and Hong Kong’s Hang Seng Index—where most large Chinese firms are listed—has fallen by more than 12 percent, reaching its lowest level in two decades. China is attempting to stabilize the yuan in response.

The slide has dampened Beijing’s recent efforts to paint a rosy picture of economic recovery. The government reports that China’s GDP grew by 5.2 percent in 2023, a low figure compared with its decades of high growth but a respectable one. But analysts outside China aren’t so sure, with skeptics at Rhodium Group and elsewhere estimating last year’s GDP growth at as low as 1.5 percent. China’s usual official data fudging seems to have been especially prevalent last year.

The gulf between China’s official optimism and the rest of the world’s pessimism is at the root of the stock market slide, which is mostly fueled by an unprecedented sell-off by foreign investors that started in the second half of 2023 and has picked up speed this year. Unlike Chinese institutions, foreign investors cannot be pressured by the government not to sell shares. (Such restrictions are common, adding to the Chinese stock market’s broad lack of credibility.)

Stock markets are not as significant to the Chinese economy as in the West; only a fraction of household wealth is invested in stocks, and the markets suffered dramatic vicissitudes in 2015 and 2016 without much impact on the wider economy. But the most critical barometer for China’s economy—the property market—is doing just as badly. New home prices and property investment both fell in 2023 and are still sliding, while new home sales are even worse, falling by 34 percent last year compared with 2022.

None of this means that the Chinese economy overall is on the brink of collapse. But the psychological shock of the downturn is hitting harder than it might in another country because the Chinese government and public have become used to high GDP growth in the last three decades. Although some parts of China, especially the country’s northeast, have suffered through hard times for years, for many people this shock is a new experience.

One of the problems with so many years of rapid economic growth is that it made it easy to overlook the debts that were piling up. Now those debts are coming due—and prospects for future growth are looking dimmer. What does the slowdown mean on a global scale? A GDP growth rate of 3 percent a year likely puts the Chinese economy substantially behind the U.S. economy by 2050, while a 5 percent growth rate would put it ahead.

For the first time in decades, the growth gap is opening up to the United States’ advantage—something that prominent Chinese international relations expert Yan Xuetong has predicted will continue in the next decade. That could mean a more cautious China or a China that convinces itself that it has to make radical moves, such as invading Taiwan, before it becomes even weaker.

What We’re Following

Would Trump sell out Taiwan? In a Sunday interview, former U.S. President Donald Trump—the front-runner in the 2024 Republican presidential primary—accused Taiwan of taking U.S. chip business and said Washington should not help Taipei in the event of war with Beijing. The remarks may give pause to the many China hawks who saw Trump’s years in the White House as an opportunity, some of whom still vocally support the former president.

As president, Trump was inconsistent on China. His administration included plenty of officials who took a tough line on Beijing. However, Trump repeatedly praised Chinese President Xi Jinping, dropped trade restrictions against Chinese firm ZTE after the Trump Organization struck financing agreements in China, and pardoned Republican fundraiser Elliott Broidy—who pleaded guilty to violating foreign lobbying laws on behalf of Chinese and Malaysian interests.

Hugo Awards scandal. The Hugo Awards, which recognize literary science fiction, are caught up in a scandal following the ceremony in Chengdu, China, last October. Recently released documents show that some works were arbitrarily disqualified from the Hugos, which are awarded at the annual Worldcon event based on popular votes. Chinese diaspora authors such as Xiran Jay Zhao and R.F. Kuang are among the most prominent figures excluded from the Hugos shortlist; others, such as Neil Gaiman, may have been blacklisted for their statements about Chinese censorship.

Ahead of the event, figures including Hugo winner Jeannette Ng warned that hosting it in China could risk censorship. Worldcon organizers have released a series of obfuscatory statements, seemingly to deflect blame. But the situation is a reminder of how the suppression of speech often works in China: People self-censor to avoid potential trouble, and foreign institutions end up complying.

FP’s Most Read This Week

• The Red Sea Crisis Proves China Was Ahead of the Curve by Parag Khanna
• Why Saudi Arabia Is Staying on the Sidelines in the Red Sea Conflict by Veena Ali-Khan
• What Gulf States Want in Gaza by Talal Mohammad

Tech and Business

Shipping dilemma. The U.S. campaign against Houthi piracy in the Red Sea has put China in somewhat of a dilemma. On the one hand, the cardinal principle of Chinese geopolitical rhetoric is that the United States is wrong, especially when it uses military force. On the other hand, China is dependent on maritime trade and has cooperated with the United States on anti-piracy efforts in the past.

For the moment, China has been unusually quiet on the issue, condemning the Houthi attacks without endorsing the U.S. strikes. Beijing’s recent line is that the “harassment of civilian vessels” in the Red Sea must stop but the end of the Israel-Hamas war should be a top priority. Meanwhile, the Iran-funded Houthis have pledged not to strike Chinese or Russian vessels, leading Chinese ships to signal their identity to the Houthis.

Soccer crackdown. Xi is a well-known soccer fan, but China remains one of the most underperforming nations in the sport by size. According to the Chinese leadership, the culprit is rampant corruption among both teams and organizers. The sport is caught up in the cycle of purges and crackdowns that now haunts almost every sector in China. Players, coaches, and officials have been arrested on charges including match-fixing and bribery.

The most recent soccer crackdown began last March, when the disciplinary officials put in charge during an earlier crackdown were arrested for corruption. This month, the confessions of major figures, including the former coach of China’s men’s national team, were broadcast on television. But none of this will bring China’s team, ranked 79th in the world, any closer to the World Cup: Apart from anything else, many good players could be in jail.