China Stocks

China Economy: Not as Strong as it Seems

The Trouble in China

As a global superpower, China's economy is very important. But is it as strong as it seems? Many experts think China might be overstating its growth and understating its debt.

Keep in mind, China's growth is not evenly spread within the country. Inland cities, not coastal cities, are the main contributors. The inland cities are playing catch-up to the coastal cities that have seen rapid growth over the past few decades. But even in the inland cities, growth is slowing.

Global investors are putting less money into China than they were even one year ago. Uncertainty due to the trade war with the United States is a major contributor to less investment.

The Great Wall of Debt

While China's central government’s finances are healthy, the debt of China’s local governments and corporations is growing rapidly. According to Economist, the size of China’s corporate debt reached $18.5 trillion in 2018.

By the end of 2018, China owed $2 trillion to foreign creditors, nearly $1 trillion more than it claimed just two years prior.

The Chinese government knows it has a debt problem. It has begun to take steps to reduce its debt, but it will be a long and difficult process.

What This Means for You

If China's economy is not as strong as it seems, it could have a negative impact on the global economy. China is one of the world's largest economies, and it is a major consumer of raw materials.

A slowdown in China's economy could lead to lower demand for raw materials, which could hurt commodity prices. This would be bad news for countries that rely on commodity exports.