The editorial board

Since the start of the year, companies from Apple of the US and South Korea’s Samsung to Indian-owned Jaguar Land Rover in the UK have warned their businesses are being hit by the slowdown in China. In some cases, other corporate issues were also at play. But the warnings are a sign of the deepening economic distress in the world’s second-largest economy, and that this will have a far bigger external impact in the coming year than it did in 2018. China’s benchmark stock market indices were the worst performing of any major economy last year, losing about a quarter of their value. But this dismal performance had relatively little effect on the outside world, thanks to the country’s strict capital controls and lack of integration with global markets.

Now that China’s slowdown has spread from capital markets to the real economy, the external impact will be much greater. China is the world’s biggest automotive market and sales fell last year for the first time since 1991. Manufacturing output contracted in December and the real estate market is floundering. Consumer sentiment, retail sales, fixed asset investment and foreign investment have shriveled in recent months. It is tempting to blame Donald Trump’s trade war for the disappointing data.

That would suggest that an end to hostilities will lead to a return of China’s previously stellar run of growth. But the trade war is merely a trigger that has exposed a much deeper malaise in the Chinese economy. Despite more than a decade of efforts to rebalance the economy and wean itself off the stimulus introduced in the wake of the 2008 financial crisis, China remains addicted to ever-higher levels of debt and construction. The Institute of International Finance estimates China’s total debt exceeded 300 percent of gross domestic product by the end of last year.

Most of the borrowing has poured into a truly unprecedented construction boom. From the start of 2012 to the end of 2016, China produced nearly three times as much cement as the US did in the entire 20th century. Much of that investment has gone to waste. A recent study by China’s Southwestern University of Finance and Economics estimates that more than one in five Chinese homes in urban areas, or about 65m apartments, are empty. And if demography is destiny, China’s prospects are bleak. Between 1980 and 2012, China added about 380m people to its working-age population. But that number has been shrinking for the past five years and is expected to fall by a third, or about 220m people, in the next three decades.