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China's economic situation isn't as dire as it seems, and policymakers in Beijing were just expecting too much, economist says

unemployment China
China's youth unemployment rate hit a record 21% in June, according to government data.REUTERS/Aly Song
  • China's economy isn't doing as bad as it seems, according to economist Nancy Qian.

  • The country's economy is still on track to grow 5% this year, per OECD forecasts.

  • But Beijing has been disappointed due to outsized expectations for economic growth.

China has appeared to be flailing since coming out of its COVID-19 lockdowns at the end of last year, with pundits and observers predicting a dire situation for the world's second largest economy – but Beijing's economic situation actually isn't as bad as it seems, according to one economist.

Though it's weighed down by a bloated property sector and looming demographic problems, China's economic growth actually clocked in at 6.3% year-over-year over the second quarter, according to the Organization for Economic Cooperation and Development.

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The nation is on track to see GDP post a 5.1% growth this year, followed by a 4.6% growth in 2024, OECD economists forecasted in September. That's the second-highest projected growth rate among countries tracked by the OECD, with the US, by comparison, slated to grow just 2.2% this year.

Even China's youth unemployment rate, which hit a record 21% earlier this summer, isn't that bad when looking at other economies, Northwestern University economics professor Nancy Qian argued. Youth unemployment rates in nations like Italy, Spain, and Sweden have stayed around 20% for even longer, according to Qian, who is the co-director of Northwester's Poverty Research Lab and the founding director of the China Econ Lab.

"But is China's economy really in dire straits? The short answer is no," Qian said in an op-ed for Project Syndicate on Monday. "The gap between perception and reality can be partly attributed to how China's exceptional economic performance over the decades has influenced the public's expectations."

Those outsized expectations have largely been fueled by China's 10% annual growth rate over the past two decades, a winning streak that was bound to lose steam eventually, Qian said. China's comparatively slow economy this year was also exacerbated by the pandemic lockdown, which has hindered demand, as well as by China's trade war with the US, and monetary policy missteps by its central bank, she added.

Experts have warned of a sluggish future for China if Beijing fails to resolve key debt and demographic problems plaguing the country. That could lead to a "lost decade," a period of stagnation similar to what Japan experienced in the 1990s.

Read the original article on Business Insider