China’s massive economic problems can be boiled down to two related issues: underpopulation and overproduction. Both are easy to trace to government policies and communist ideology.
A Population Disaster
A recent article in Fortune spelled out the population issues in stark and simple terms.
“China may be the only nation that could rival America’s economic dominance. But its long-term prospects will potentially be cut off at the knees by a fundamental flaw: It won’t have the people to keep its growth going.”
According to the World Population Review, China’s “crude birth rate” is 6.15 children per thousand people. For comparison purposes, Canada has nine per thousand, the United Kingdom has 9.78, and the United States has 10.6. The Canadian, U.K. and U.S. numbers are dismal, but China’s are disastrous.
A vital fact is that China’s men significantly outnumber women. Those numbers are exceptionally high for those in their teens and twenties. From ages fifteen to nineteen, there are 115.3 men for every 100 women. Only above the age of fifty-five is there a reasonable balance.
The reason for this imbalance is China’s infamous one-child policy. Since Chinese custom dictates that older parents are supported by their sons, couples limited to only one child wanted to ensure that the child was a boy.
Now, this policy is wreaking havoc. The one-child policy got the Chinese used to not having children. Now, not even government payment can induce Chinese couples to have children. The imbalance between the sexes makes it difficult to form couples.
Gargantuan Errors
The second economic problem is overproduction, especially in real estate, alternative energy (especially solar panels) and autos. The fundamental problem is caused by total state control of the economy, which cannot adjust to market needs.
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Outside of the Communist world, the free market deals with such issues. If a company produces too much of a given product, it can respond in many ways—suspending production, lowering prices or warehousing the excess products, among others. Eventually, managers, stockholders, bankers, retailers and consumers will all play a role in straightening the situation out.
In a Communist system, state government officials centrally plan and dictate everything. The government can order increased production as an exercise of its power or international projection, not real market demand.
Compliant industries receive tax breaks, subsidies, discounted raw materials, employee bonuses, and other benefits. The central government always makes the key decisions and expects strict compliance.
Hence, overproduction happens when forces set in motion by government decisions are left unchecked.
A Housing Glut
This can be seen in China’s real estate situation. It is so bad that Newsweek headlined a recent article “China’s Property Market Death Spiral.” The journal quoted an “Asia-Pacific investment strategist” with an amazing assessment. “[T]here are 600 million permanent buildings in Mainland China, or one building for every two Chinese. There is no possibility for the domestic consumers to absorb this over-supply.”
Much of this stock, however, is not yet finished as it was set in motion to meet government quotas. Last year, the investment firm, Goldman Sachs, estimated the value of China’s unsold and unfinished housing inventory at approximately $13 trillion.
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In such an environment, thousands, perhaps millions, of Chinese citizens hold deeds to unfinished and unsalable properties they paid for but will never occupy. No matter how sunny a face the government puts on the situation, those people know in their bones that Xi’s government made massive errors, and that they are the victims.
Solar Panels
China controls what should be a massive and growing worldwide industry: solar panels. According to the British Financial Times, it controls roughly eighty percent of global production capacity and sells them for about two-thirds the price of their U.S. competitors, a constantly widening price gap. That should be cause for celebration in Beijing.
Except that, here too, overproduction creates chaos. In 2024, the Chinese expanded production to an absurd level. That year, they produced enough panels to cover the world’s projected demand until 2032. The result is that all three major Chinese producers lost over half of their value over the last two years.
Too Many Cars
Since the early twentieth century, car ownership has been a sign of power, influence and success in China. Therefore, Xi Jinping ordered the industry to shift into overdrive as a way of projecting China’s power and influence. European and American companies received huge inducements to build and expand there. Budding Chinese automakers received even more favorable treatment.
Therefore, it is no surprise that the Chinese auto industry also faces overproduction issues. Reuters aptly described the situation in its headline, “China is Sending its World-Beating Auto Industry Into a Tailspin.” The article describes a chaotic marketplace where car buyers “can choose from some 5,000 vehicles. Locally made Audis are 50% off. A seven-seater SUV from China’s FAW is about $22,300, more than 60% below its sticker price.”
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Purchasers may see such conditions as ideal. For producers and dealers, they are nightmarish. China produced 27.5 million cars in 2024, far more than the market could absorb. Amazingly, the current manufacturing capacity is roughly twice that of 2024’s production. The New York Times says China has over a hundred electric vehicle manufacturers. Prices start at less than $10,000, far less than production costs, even in China’s tightly regulated labor market. Industry insiders predict that only fifteen producers will last until 2030, unless China releases massive new subsidies. These may calm the situation temporarily, but will only accelerate the long-term economic chaos.
No Help From Europe or America
The governments of Europe and North America are not eager to absorb the excess Chinese vehicles or solar panels, no matter how low prices descend. Such a move would destroy their local industries, and the effects would be catastrophic. Nor is the developing auto industry in India anxious to face Chinese competition. Perhaps China could dump some of its excess in the Middle East, Africa or Latin America, but that will not spell economic salvation for the Chinese.
China’s ambitions are massive. Only a few years ago, intelligent economists predicted that China could displace the United States as the world’s economic leader. In the current conditions of underpopulation and overproduction, such predictions have largely ceased. The Chinese Communist Party’s path means that China could easily follow its one-time ally, the Soviet Union, down the economic slide into oblivion.
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