Has the ‘peak China’ theory been rekindled?

YOU SANG-CHUL
The author is the CEO of China Lab.

Just like everything in life, bright sides and dark sides always coexist in the Chinese economy. Recently, the People’s Bank of China Governor Pan Gongsheng said that China will easily achieve its target growth of 5 percent this year. This is good news for Korea, as 20 percent of its exports go to China. But there is a dark side, too.

According to the Hyundai Economic Research Institute’s analysis, the average monthly visits of Chinese tourists to Korea was 416,000 between 2017 and 2019, when Chinese group tours were not possible. However, even though the group tour ban was lifted in August, the number of incoming Chinese tourists is 144,000 people per month this year, only one-third of before. Why? The biggest cause seems to be the economic downturn in China. Lately, Shanghai and Shenzhen have been hit by bankruptcies, layoffs and unemployment. There are online outcries, “I submitted 8,000 resumes, had 27 interviews and got no offer.” Anxiety about the future is weighing on the Chinese. As a result, people are increasingly saving instead of traveling abroad.

Japan’s Nomura Securities estimates that Chinese households’ excess savings have reached a whopping $720 billion. It is noteworthy that the Chinese authorities are working hard to attract foreign tourists. At the end of last month, China announced a one-year temporary visa waiver for six countries, including France, Germany, Italy, Spain, the Netherlands and Malaysia. The action is understandable since only about 500,000 foreigners visited China in the first half, down 96 percent from 14 million in 2019.

According to the U.S. Embassy in Beijing, 350 Americans are currently studying in China, down 97 percent from 11,000 in 2019. No wonder Chinese airports are so empty. Meanwhile, global investor company Rockefeller International’s Chairman Ruchir Sharma predicted that China’s share of the world’s GDP will fall from 18.4 percent in 2021 to 17 percent this year. For the past 30 years, China’s share in the global GDP has continued to increase since it hit the bottom in 1990 at 1.7 percent.

Since overtaking Japan to become the second largest economy in 2010, it was considered just a matter of time until China surpassed the United States. However, for the first time in 33 years, China’s share in the global GDP is expected to shrink. It is likely that the “peak China” controversy — a theory on China’s growth having reached its limit, which was popular in the beginning of the year — will gain traction. For every 1 percent drop in China’s economic growth, Korea’s growth is expected to drop by 0.15 percent. The Korean economy cannot be free from the cold winter the Chinese economy is facing. Neither optimism nor pessimism is allowed. As we approach the end of the year, we need to monitor the Chinese economic situation more thoroughly than before.