Dec 28, 2023 - Podcasts

2023: The year China's economic miracle ended

For years, we've heard that China is an unstoppable economic engine. In 2023, that changed. One stat says it all: in the third quarter this year, foreign direct investment in China was negative for the first time in modern history.

Today for the holidays we're bringing you another special episode of 1 big thing where we spotlight a leader from within our own newsroom. Axios' Bethany Allen-Ebrahimian explains why China's economic miracle has ended, but its power is still growing.

Guests: Bethany Allen-Ebrahimian, Axios China reporter and author of "Beijing Rules: China's Quest for Global Influence."

Credits: 1 big thing is produced by Niala Boodhoo, Alexandra Botti, and Jay Cowit. Music is composed by Alex Sugiura. You can reach us at [email protected]. You can send questions, comments and story ideas as a text or voice memo to Niala at 202-918-4893.


NIALA BOODHOO: For years, we've heard that China is an unstoppable economic engine. In 2023…that changed.

BETHANY ALLEN-EBRAHIMIAN: So what we've seen in this year is the end of China's economic miracle as we know it.

NIALA: From Axios, I'm Niala Boodhoo, and this is one big thing.

One stat says it all: In the third quarter this year, foreign direct investment in China was negative…for the first time in modern history. That doesn't mean China's economy is doomed – but what does this mean for all of us?

Today for the holidays we're bringing you another special episode of 1 big thing, where we spotlight a leader from within our own newsroom. Bethany Allen-Ebrahimian is Axios's China reporter, and author of Beijing Rules: China's Quest for Global Influence. She's based in Taiwan - but she was back at our Axios home offices in DC for the holidays, so we got together to talk for our very last episode of 2023.

Hi, Bethany. Welcome to One Big Thing.

BETHANY: Hi, Niala. Thanks for having me.

NIALA: Before we get to what's happened this year, we always talk about China being a global economic powerhouse. In my mind, what that means is like when I used to interview farmers in Illinois, I was always amazed at how much China factored into their business. The connections between Peoria and Beijing.

BETHANY: Yes, I see it. In fact, here in the Axios newsroom, where reporters across beats and industries often write articles about China, even when that has, you know, when that's not their beat. Because so much of so many different industries are dependent on China or related to China, whether that's electric vehicles or social media or certainly, you know, trade or Taiwan.

It touches rare earths. China touches now on almost everything that we do.

NIALA: Can you just, like, give us a sense of where China fits into the global economy then?

BETHANY: Initially, China's role in the international economy was very heavily tied to its manufacturing sector. You know, China as the factory of the world. You know, mid 2000s, you walk into Walmart, you walk into Walmart You look at the tags or, you know, the product labels, everything is made in China.

But what has happened in the past 10 years or so is that the Chinese government has made a big push to increase the value of China's production chains. really emphasizing China's leadership, growing leadership in emerging technology, in robotics, in, quantum computing. especially in the green energy transition, so the production of solar panels, the production of electric vehicles, and so we've seen, China playing this role in the global economy as an exporter of a lot of very low cost consumer products to increasingly having a dominant role in More advanced technologies.

NIALA: So we're talking about China's exports. How important is it for American companies to be doing business in China?

BETHANY: Well, American companies for decades, even before China was an economic powerhouse, viewed being in China's market as key to their future profits. And you can see this all the way from the early 1990s when American business groups lobbied President Clinton to de link trade with China from its human rights record.

And he did. Uh, that eventually paved the way to China's, entrance into the World Trade Organization, which then, you know, made, made it possible for China to become the economic juggernaut that it is today. I mentioned

NIALA: I mentioned a stat about foreign direct investment or FDI at the top. Can you tell us more about that? That was in November.

BETHANY: Yeah, that's really extraordinary. Uh, for the first time since China's, reform and, and opening up in the, the late seventies when such statistics first started. Being kept or, or mattering. It's the, it's the first time that foreign direct investment in China has fallen even a little bit.

And foreign direct investment is something that has really helped China develop its economy. It's something that China has sought and it's Obviously something that foreign investors have sought as well. What we've seen this year, however, is a combination of a number of factors, but perhaps most important is that the Chinese government under Xi Jinping has placed growing scrutiny and, and really, I would say political scrutiny on foreign firms operating in China.

We've seen, very likely politically motivated audits of due diligence firms in particular and the detention of employees of foreign due diligence firms. And that has made it much more difficult for international companies to have any sense of what is happening in the Chinese market.

It's like going in blind. And that seems to have started having an effect and I would, I would combine that with the slowdown in China's economy that started during the pandemic and has deepened this year based in a, a real estate crisis, debt crisis, and other factors.

NIALA: How much did the pandemic contribute to the economy slowing down in China?

BETHANY: It was a factor. It's interesting because, because of China's really successful zero COVID policy in 2020, China was the only major economy to actually experience economic growth in 2020. But later, when the Chinese government was not able to successfully manage an exit out of the zero COVID strategy, there was, you know, these, these really draconian lockdowns damaged the economy.

But what people expected was that as soon as that zero COVID policy was lifted, what analysts expected was for China's economy to just bounce right back. That's not what happened. What did happen is that the real estate slowdown and the debt crisis that economists have been predicting for more than a decade finally did hit.

And so what we've seen, in this year is the end of China's economic miracle as we know it.

NIALA: What do you mean by a debt crisis? Can you explain more?

BETHANY: Let's go back to the, uh, financial crisis that, the global financial crisis in 2008. The Chinese government responded to that by having massive stimulus. packages, you know, this massive stimulus across the economy. And part of that was, it was both paid for and fueled by local government spending, particularly on real estate projects, real estate development, and other kinds of construction projects.

And, you know, that was a great way to fuel economic growth for a long time, and that's a well-worn path for developing economies for a period of time. But in China, the preferential lending rates and these other stimulus policies were so large and were pushed for so long that they fueled a massive real estate bubble. And, at the same time, local governments were taking out so much debt, you know, to fund a lot of this real estate development.

And their debts were getting higher and higher. Now, people were predicting that this sort of dual bubble would burst far earlier than it did. Part of the reason it didn't was because there was, there were more and more and more supportive policies from Beijing, but also because China's economic growth was still so rapid.

And so there was this, this sense that perhaps China could outgrow its debt, that if it could just hang on long enough, that it would kind of make up for that. But finally in 2023, that real estate-fueled economic growth model came screeching to a halt.

NIALA: Bethany, we've talked about how you can't erase politics from this equation. How much does China's population shift? I'm thinking in particular of its controversial one child policy. How much does that play a role in China's economic growth?

BETHANY: China's one child policy, demographers have known for a long time, has created a looming demographic winter in China. Now that winter has not yet arrived, but it artificially pushed down fertility rates, which was its purpose, of course.

There was a longstanding belief, and this predates the rule of the Chinese Communist Party, that China's large population was a major source of its poverty. And so there was this, government belief that if they could have fewer children, reduce the population growth rates, that it would improve, in their, in their words, the population quality and, increase prosperity.

But that has put China in a situation where it seems possible that it may grow old before it grows rich. China's population shrank for the first time ever this year.

That has not yet begun to significantly affect the size of the workforce, although it will, perhaps in another 10 years, there will be a situation where the size of the workforce is not able to sustain the number of people in retirement, the number of older people who typically rely on their children, for their care and for their support in their old age.

And that's going to put an enormous amount of pressure on a shrinking working-age population. Of course, a smaller working-age population means less economic growth. That is not a major driving factor of this year's slowdown, but it is a major driving factor of Chinese government anxiety about the future and about its current economic decision making.

I mentioned earlier that the Chinese government has, for at least 10 years, been focusing on making China's, uh, economic growth dependent on higher tech industries. One reason for that is that those industries can be more productive.

They can create higher GDP growth with a smaller number of workers, and that is one way that the leadership in Beijing hopes to prevent a demographic-fueled economic slowdown in the future.

NIALA: We'll be back in a moment with more...stay with us. This is 1 big thing.

Welcome back to 1 big thing from Axios -- I'm Niala Boodhoo. We're bringing you my conversation with Bethany Allen-Ebrahimian, Axios China reporter, about this year that China's economic miracle...ended.

NIALA: Bethany, did American policy towards China or other, Western nations play a role in what's been happening in China economically this year?

BETHANY: I would say largely no. The primary sources of China's economic slowdown are based purely on its own economic growth model. However I mentioned that foreign investors are a bit spooked right now to invest in China because of the increasingly politicized scrutiny and, um, restrictions on foreign due diligence firms or any due diligence firms operating in China.

And while that is in part a result of China's own growing political paranoia, you know, Beijing is operating in an environment in which more and more countries are viewing China with greater skepticism, are viewing it as a national security threat, and with the U.S. in the lead, are adopting more and more investment restrictions on China.

And you could say that the restrictions that China is putting on due diligence firms is a direct result of the restrictions that the U. S. and some European nations are putting on their own investors to try to prevent them from being complicit in, among other things, the, the regime of forced labor and genocide in Xinjiang, which is tied to many of China's supply chains.

NIALA: Bethany, it always strikes me whenever I'm in the Caribbean, really almost any island that's not U. S. territory, how much Chinese people are building everything, like movie theaters in Nassau. We talk a lot about the Global South and developing countries. How much of a role does China play in other economies?

BETHANY: It really depends on the country, but there are many countries in the world for whom China is their number one top trade partner. And, you know, through the, the Belt and Road Initiative, which is, Xi Jinping's signature foreign policy initiative, we saw a huge outflow of, lending and assistance from the Chinese government, to nations across the African continent, the Middle East, South America, the Indo-Pacific, to build a lot of the infrastructure that is truly lacking in these places.

And the companies that most often got the contracts were Chinese companies or Chinese state owned enterprises. And as part of this outflow of Chinese capital and Chinese companies, there were Chinese laborers and then there were, you know, other Chinese people operating independently who saw opportunities in, in the import export business, or they wanted to open a restaurant to cater to the growing Chinese population abroad.

All kinds of, you know, really interesting entrepreneurship as well, but it is, it is so true that when you travel in many places. I was, you know, recently in Cambodia and Tanzania. China and Chinese companies and the Chinese government have a bigger and much more visible footprint than in already developed economies.

NIALA: So how much does Beijing care about exporting its ideology rather than It's economic model. Are you saying that all of this is to further Chinese ideology in the world?

BETHANY: I think the end goal is Chinese power. And I would say that, you know, Xi Jinping doesn't see very much of a difference between its ideology and its growth model. was recently in Tanzania on a reporting trip, to visit a Chinese Communist Party funded school where people from China fly in to teach, politicians across six African nations how to implement its growth model, which was the same as its political model, which is to say a one party state. The idea that a one-party state is the best and most efficient way to develop an economy. So it's all wrapped in together. And this benefits Beijing because the more countries ascribe to a more authoritarian model, the less pushback on its own authoritarianism and human rights record that China receives on the global stage.

NIALA: So does China's economic miracle coming to an end in 2023 mean a curtailing of these other efforts internationally?

BETHANY: I think it will create greater headwinds for China. I think it's important to keep in mind that when we say the end of China's economic miracle, we don't mean the end of China's economic growth.

In fact, its economic growth is still, faster than that of the U. S., and its economy is massive. China is by no means in recession, and I think that we will continue to see various industries across China experience rapid growth, even if overall, its economy is growing at a, at a less stunning pace than, than in the past.

So, you know, China is here to stay. It's economy is, is large and here to stay, and the power that comes with that and the geopolitical sway is here to stay, even if some of the dreams and expectations have kind of come back down to earth.

NIALA: So, Bethany, I wonder what the bottom line is for Americans or those of us in the West, especially people who maybe are not paying much attention to all of this.

what do you think they need to know about this?

BETHANY: I think that depends on who you are. For politicians and for people in the national security community, it means a better chance of effectively competing with China around the world, both ideologically and economically. For American business owners, especially those with an interest in the Chinese market, it means greater challenges and fewer rewards going forward. But with still, uh, huge incentives to keep trying to get in or stay in the Chinese market.

NIALA: What do you think is ahead for 2024?

BETHANY: I would say there's three things for, for us to watch. First is the presidential election in Taiwan, which is less than a month away.

Certainly Beijing is hoping for a more pro-China candidate. Although it looks like the, the more Beijing skeptic candidate is poised to win.

Second is America's own presidential election. So much of the, the trend in the past few years towards tougher policies on China and greater concern about, you know, China's challenges to the national security of democratic nations has hinged on the U.S.'s own policies. If we see the election of a different president than Biden at the end of this year, that could potentially mean a shift in U.S. policy, which could potentially greatly affect China's own trajectory. And third, I would say, watch Beijing to see if this fall in foreign direct investment and the fall in foreign investor confidence ends up persuading the Chinese government to relax some of these very strict policies.

NIALA: Bethany Allen-Ebrahimian is Axios' China reporter and author of "Beijing Rules: China's Quest for Global Influence." Thanks, Bethany.

BETHANY: Thanks so much, Niala.

NIALA: And that's all for this week's edition of 1 Big Thing. Our team includes Supervising Producer Alexandra Botti and Sound Engineer Jay Cowit. Alex Suigura composed our theme music. Aja Whitaker-Moore is Axios' Executive Editor, and Sara Keuhalani Goo is Axios' Editor in Chief.

Thank you so much for listening to the first few months of 1 big thing – we are very grateful for all the feedback and encouragement you've sent our way, and we are excited about the guests we'll be bringing you in the new year, including artists, economists, anthropologists, politicians, and a whole lot more. But we would love to hear from you. What kinds of people would you like to hear on the podcast? What topics do you want us to touch on? Text me at 202 918 4893 - or email podcasts @

I'm Niala Boodhoo. Thanks for listening, stay safe - best wishes for a happy new year… and we'll be back with you next Thursday for our first show of 2024!

Go deeper