By Camille Mendoza
China's economy looked like its new cities: bright, expensive, but empty. In 2011, China became the world's leading exporter, and the largest economy, with annual GDP growth at almost 12%. Since then, growth has decelerated to 7%, causing the rest of the world to fixate on China's economic slowdown. It is easy to see that the Asian Giant's economic miracle is coming to an end by looking at the export boom and outcomes of countries that have faced banking crises in the past. The miracle is ending for China, and there is nothing it can do.
The International Monetary Fund has noted that over the past 50 years, only four other countries have experienced as rapid a buildup of debt as China during the past five years. All four—Brazil, Ireland, Spain, and Sweden—faced banking crises within 3 years of their supercharged credit growth. This debt paid for China's boom and exports have sustained it. China's current surplus of exports points to billions of dollars wasted, as countries are not buying enough Chinese goods. The Wall Street Journal reported that a lone steel production company in Hebei, a province surrounding Beijing, produces twice as much crude steel as the entire U.S., and no longer needs to produce this much. China's overproduction may be its downfall.
While excessive Chinese exports and consistent declines in GDP explain a bleak Chinese future, the past is also important. Harvard economists Lant Pritchett and Lawrence H. Summers argue that countries that have had long periods of abnormal growth tend to revert to around 2% growth, a meek figure in comparison to China’s current growth rate. This figure has grave implications. Economist Neil Irwin explains if growth reverts to 2%, China's GDP will be $11.2 trillion by 2033. The effects are already being felt. Wall Street Journal writer Bob Davis explained that what was once a Chinese skyline full of construction projects has become a cluster of empty apartment complexes.
Optimists must have confused China's economy for a bright dawn instead of a dreary twilight brought on by high levels of debt, dangerous surplus of exports, and the already glaring signs of what China is poised to become: a ghost economy.