2023 Moody's Downgrades China's Credit Rating / Who is the Next China?

China's Economic Situation at the End of 2023: There have been many reports about the concerning state of China's economy. I'm curious as to why China's economy is gradually worsening and becoming more serious. Although I live in China, I don't personally feel the signs of an economic downturn that strongly affects me. Let's briefly examine the current risks in China and the countries that may continue the role of the world's factory after China.

Moody's Downgrades China's Credit Rating

As tensions between the United States and China escalate and the world grapples with the COVID-19 pandemic, China's economy has started to decline rapidly. China has been fostering labor-intensive industries such as textiles and electronics since the 1980s. However, it is now being evaluated that China's manufacturing heyday has come to an end due to the global economic downturn and the US-China trade war. After COVID-19, China's domestic growth has slowed down, and most notably, the real estate market has entered a long-term slump, leading to a sharp decline in Chinese consumption.


Due to these various reasons, on December 5th, the international credit rating agency Moody's downgraded China's credit outlook from stable to negative.Why did Moody's downgrade China's credit rating? In brief,


  • Rapid increase in local government debt
  • Weakening investor sentiment in real estate investment
  • The increasing number of Chinese consumers who save rather than spend
  • Soaring youth unemployment rate in China


China-Peak


Reasons for China's Peak?

Low Birthrate: One long-term factor contributing to China's economic downturn may be low birth rates. This year, the number of newborns in China has decreased by 10% compared to the previous year, with a drop from 10 million to 9 million. The declining population, which has been the source of China's low-cost labor force and its role as the world's factory, could be a significant disaster for the activation of the massive domestic market in China.

Youth Unemployment: China's easing policy began gradually in 2022. It was expected that economic activities in China would resume for many countries after that, but it did not happen. Due to slow economic recovery, companies are not actively hiring new employees, making it difficult to find jobs in China at present. The youth unemployment rate for those aged 16 to 24 in China reached a record high of 21.3%. In other words, one out of five Chinese youth is unemployed.

Conflict Due to Unilateral Diplomacy: China is currently experiencing increased conflicts with Taiwan, economic disputes with the United States, marine pollution and geopolitical disputes with Japan, mediation roles in the Ukraine-Russia war, and frictions with Middle Eastern countries due to the Belt and Road Initiative. With many roles to fulfill and ongoing conflicts with neighboring countries, facilitating trade is not easy for China. This also acts as a major obstacle to China's economic growth.


Who is the Next China? Emerging Countries

In the current market, emerging market countries are observed to benefit the most from China's volatile investment environment. The global supply chain is also being restructured, with a focus on emerging countries such as Vietnam, India, Mexico, and Indonesia, which are becoming more attractive for investment due to their large populations and low labor costs. They are being identified as the Next China, capable of generating high productivity.



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