Since the mid-1990s, China has been the key global buyer of multiple commodities needed to power its economic growth. The purpose of this growth was partly to create and enlarge a middle class over which it is generally much easier to maintain control than either a fractious upper class or working class. It was also to establish a superpower counterpoint in the Global South to rival that of the U.S. in the Global North and eventually to overtake it as the world’s top superpower, as analysed in depth in my new book on the new global oil market order.
China’s stellar economic growth for many years pushed the prices of the major commodities it needed ever higher, almost single-handedly creating and sustaining the commodities supercycle over those years. The onset of Covid in the country at the end of 2019, and the Draconian ‘zero-Covid’ policy used to try to contain it, severely impacted this growth and its wider ambitions (for now, at least). The key question for the global oil markets is what will happen to China in 2024?
China’s economic growth target for 2023 was officially “around 5”, which meant that it was almost certainly going to be attained on paper, regardless of the reality behind the figures. That reality is that growth of anywhere between 3 and 5 percent was achieved, depending on how the data is interpreted. For at least the first two quarters of the year, key economic releases were poor – especially outside the consumer sector. This meant that jobs were increasingly hard to come by in China’s cities, into which the country’s dream of a new middle-class existence had drawn tens of millions away from their previous agricultural-based lives since the late 1990s.
Young people have found it especially difficult, and the youth unemployment rate grew so much that China stopped publishing it after June’s figure showed this jobless rate at an all-time high of 21.3 percent. China’s top political figures – including President Xi Jinping – are acutely aware of the potential for high youth unemployment to spiral into widespread protests. They know that just before the series of violent uprisings in 2010 that marked the onset of the Arab Spring, average youth unemployment across those countries was only marginally higher – at 23.4 percent – than China’s is now.
For the Chinese Communist Party and its current leadership, then, this has now become an existential crisis and one for which it cannot continue to use its previous tried-and-trusted method of growing its way out of all difficulties. This method basically involved pumping government money into economy, often through state-owned enterprises (SOEs) and financial institutions to achieve ever-increasing degrees of economic growth. The understanding was that this could be repaid at some point in the distant future, at such a time in fact when the growth of the assets the money had bought could pay for the debt incurred. As long ago as March 2017, then-Premier Li Keqiang made two major announcements at China’s annual National People’s Congress (NPC) in Beijing. The first was that the world’s second-largest economy had cut its growth rate target to the lowest level in 27 years. The second was that: “Developments both inside and outside China require that we are ready to face more complicated and graver situations.”
Even before this acknowledgement by Li, though, the global financial markets were aware that China had for a while been demonstrating the three key symptoms that preceded all the major financial crises of the past three decades – the 1997 Asia Crisis, the 1998 Russia Crisis and even the Great Financial Crisis that began in 2007, as analysed in depth in my new book on the new global oil market order. These were a high degree of debt leverage, a rapid rise in asset prices and a decline in underlying growth potential – in short, all the factors need to inflate a bubble that would then burst.
The debt of any country can be divided basically into two components: domestic and foreign. China’s foreign debt rose from around US$52.55 billion in 1990 (about the start of the country’s dramatic surge in economic growth) to about US$2.4 trillion in 2020 (around the time of the onset of Covid). China’s government debt to GDP ratio was about 68 percent at that point. Even with the increase in this government debt to GDP ratio after Covid (to just over 80 percent at the beginning of 2023), the other component – domestic debt – is where the serious problems lie.
This is because it has long been an area beset by a lack of clarity, which persists to this day. Unofficially, including this debt, China total debt-to-GDP ratio is anywhere between 270 percent and 300 percent, up from around 200 percent just five years or so ago. Even according to the People’s Bank of China’s (PBOC) own data, outstanding ‘total social financing’ (which measures overall credit supply to the economy and includes off-balance-sheet forms of financing that exist outside the conventional bank lending system) stood at CNY5.98 trillion (US$858 billion) in January 2023. Santa Getting Boost From Lower Gasoline Prices.