Has China’s economy run out of steam?

Published

2 years ago

September 4, 2023

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The southern Chinese city of Zunyi is awash with signs the nation’s economy is not in good health.

Everywhere you look there are unfinished infrastructure projects; empty apartments, half-constructed tunnels, huge projects where, it seems, the money just ran out.

It is a symbol of a system that is stuttering.

The mighty Chinese economy, that once delivered seemingly miraculous growth of some 10% plus a year, is slowing.

Cracks, driven by structural weaknesses that were once easy to pave over, have started to appear.

The economic model of driving up GDP with vast borrowing and building worked when China was poor and needed new roads, bridges and airports, but it is no longer sustainable in a modern China that now finds itself drowning in debt and with nothing left to build.

There are big questions about what happens next.

In Zunyi, one road in particular speaks volumes about the troubles now plaguing parts of the system.

Snaking over parts of the city, the Funxin Expressway is a multilane highway that cost 4bn yuan to build, but sections now lie incomplete and abandoned.

On one side, a handful of cars occasionally drive by, the other is completely empty save for a few locals who now use it to take a stroll or walk their dogs.

There is something almost eerie about walking along it – a sense that the area has been somewhat forgotten.

A local woman, Mrs Chen, tells us the bridge has been like this for ten years.

“A lot of land was taken, many people had to move away,” she says.

“Why has the construction just stopped?” she asks, “This is a government fund, I think they didn’t use the money for anything. I think it’s been wasted.”

When we asked local authorities, the Ministry of Foreign Affairs Zunyi branch said the expressway was completed on 31 August 2023 (just two days after we visited) and is scheduled to be put in use the first half of September.

They added the local government “actively encourages and guides construction companies and developers to move forward with construction in an orderly fashion,” and that the government “strictly follows national and provincial rules and regulations on investment and management”.

On the other side of a small hill, I find the connecting tunnel, where the project has come to an abrupt stop.

Opposite the entrance of the tunnel are huge concrete pillars where construction was clearly meant to continue and beyond that, blocks of homes vacated and marked for demolition – lives moved on to make space.

There are just a few residents who have hung on here, including Shi Chunli who has lived here for 40 years.

She claims to have given the authorities her property in exchange for a new apartment elsewhere.

“They said we would have a new apartment in three years” she says, “it will be the fifth year this September, but everything is still the same.”

And she has a pretty clear idea as to why her life is in this limbo.

“It’s mainly that there is no money. The state does not have any money left.”

There are projects like this across China, but there is a particularly high concentration in Guizhou province, where Zunyi is located.

In fact, Guizhou province, one of the poorest in the country, is also the most indebted with its debt pile over 135% of its GDP.

This rural province leaned heavily into the Chinese growth model that for so long delivered such remarkable numbers: huge borrowing, massive investment and vast building – regardless of whether the projects were needed.

Indeed, Guizhou has 11 airports, many quite close to each other, and nearly half of the world’s 100 tallest bridges, according to state media outlet Economic Daily.

It is a model that has been replicated throughout the country. Investment has made up an average of 44% of China’s economy in recent years, for which experts say there is “no remotely comparable historical precedent”.

But while this model made sense when China was playing catch up, it has now become a major liability.

The government has few places to turn to deliver the high growth it has become accustomed to.

But this is a problem the government cannot ‘invest’ its way out of, as it has in the face of previous economic challenges.

As many experts will point out, this level of unproductive investment has been a symptom of the Chinese economy for many years, so why is it biting now?

It is largely because other parts of the economy are struggling – exposing the fault lines at its core.

Last month, prices in China actually fell when compared to the same month last year, raising fears of more long-term deflation.

The key issue is that consumer demand simply hasn’t bounced back post-pandemic as China’s leaders hoped it would.

Months of zero-COVID rules that saw whole cities plunged into sudden extreme lockdowns destroyed thousands of businesses and vastly depleted family savings.

The net result is that people just don’t have the money to spend, and what they do have they are reluctant to part with (China’s saving rate is one of the highest in the world according to the IMF).

These trends were clear in some of the smaller markets around Zunyi.

“Business is bad now,” one stall holder told us, “it’s getting worse year after year.”

And why?

“The pandemic,” she says, “the impact of the pandemic is too big.”

There are other issues too, highly interventionist government policy that cracked down on certain industries like tech and private tutoring have left certain sectors crippled and foreign investment nervous.

And in this environment millions of young people are struggling to find work; the number of 16-year-olds out of work in June was a record 21.3%.

The government has since stopped publishing these figures, but experts fear the true number may be much higher.

But perhaps most threatening of all is the deep crisis in the housing market.

In a similar way to local government spending on infrastructure, Chinese developers have spent years borrowing huge sums to build millions of apartments, often pre-selling them to buyers before construction was complete.

Following moves by the central government in 2021 to try and curb this excessive borrowing, many found themselves unable to afford their debt payments and some like Evergrande, once one of China’s biggest developers, defaulted.

It plunged the market into a crisis which it has struggled to recover from, leaving many buyers with unfinished homes and many others unwilling to invest in property.

Prices have fallen and there have been huge knock-on impacts on industries that service construction.

This month, the spotlight has been on Country Garden, another Chinese developer, once considered a safe pair of hands, as it too struggled to make a scheduled bond payment.

Shares in the firm have rallied, however, following reports it has agreed a deal with creditors to make the payments in instalments over the next three years.

There are fears about how all this will play out and whether it will affect the rest of the world.

With the Chinese economy facing increasing global scrutiny, President Xi Jinping has surprised commentators by signalling he will not attend this weekend’s G20 summit in India. Premier Li Qiang will attend instead.

But experts insist there almost certainly won’t be a major financial crash.

“It’s very unlikely because the financial breakdown is really a balance sheet breakdown,” explains Michael Pettis, a renowned expert on the Chinese economy and professor at Peking University.

“In China, the regulators are so powerful, and they can restructure liabilities at will, so that you will never have a balance sheet breakdown.

“Over the long-term, that’s a bad thing because it means that the necessary adjustment is much slower than otherwise. But from a social and political point of view, that’s a good thing, particularly over the short-term.”

What is most likely, he and other experts insist, is that China sees a more prolonged period of slow down and re-adjustment in its economy akin to what happened to Japan from the 1990s onwards.

There will, however, likely be some pain to come for ordinary Chinese people as this slow but ultimately necessary process plays itself out.

Business

Thames Water debt pile rises further despite return to profit

Published

3 hours ago

December 3, 2025

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Thames Water debt pile rises further despite return to profit

Cash-strapped Thames Water has revealed a further rise in its debt pile while recording a return to profit on the back of inflation-busting hikes to bills.

The UK’s largest supplier said the 31% rise to customer bills since April had allowed it to increase capital investment by 22% to £1.3bn amid demands it improve performance in preventing sewage spills and stopping leaks.

Thames Water said it recorded a 20% drop in pollution incidents over the six months to the end of September, and leakage performance was holding steady despite the “extremely dry summer”.

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While waste complaints dipped by 11%, according to the company, there was a 42% surge in the number of customers complaining about the hike to bills.

Thames Water revenue rose 42% on the same period last year to £1.9bn, helping a return to profit after tax of £328m on the back of a £190m loss during April-September 2024.

The company said profitability was damaged by higher debt serving costs.

Its debt pile was recorded at £17.6bn – a rise of 5%.

The results were released against the backdrop of continuing talks involving the government and regulators over a proposed rescue deal by major Thames Water creditors.

Their consortium is known as London & Valley Water.

It effectively already owns Thames Water under the terms of a financial restructuring agreed early in the summer but regulator Ofwat is yet to give its verdict on whether the consortium can run the company, averting the prospect of it being placed in a special administration regime.

Without a deal the consortium, which includes investment heavyweights Elliott Management and BlackRock, would be wiped out.

Ofwat, which is to be scrapped under a shake-up of industry oversight, has been leading scrutiny of London & Valley’s operational plan and proposed capital structure.

The prospective deal would write off billions of pounds of the company’s debt and inject billions in fresh equity, in return for an adjustment in the regulator’s approach to future financial penalties.

Thames sees the creditors’ proposal as the only viable solution.

Despite huge hikes to household bills – allowed across England and Wales to bolster aging infrastructure including storm overflows – the company says its financial turnaround has been hampered by record fines for things like sewage leaks and bonuses to retain key staff.

Sky News revealed on Tuesday that its remuneration committee will meet next week to decide whether to proceed with nearly £2.5m in retention payments to 21 senior managers.

Read more from Sky News:
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The Bank of England’s take on ‘elevated’ risks

Thames Water chief executive Chris Weston said the company had made good progress on its operational and transformation targets.

“This progress has all been achieved as we also manage the recapitalisation of the business. We continue to work closely with stakeholders to secure a market-led solution that we believe is in the best interests of our customers and the environment.

“This in turn will allow the transformation of Thames to continue, a programme that will take at least a decade to complete and will restore the infrastructure and operations of the company.”

Business

FIFA backs away from dynamic pricing for all World Cup 2026 tickets

Published

3 hours ago

December 3, 2025

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FIFA backs away from dynamic pricing for all World Cup 2026 tickets

FIFA has backed away from using dynamic pricing for all 2026 World Cup tickets amid concerns about the cost of attending the tournament in North America.

The organisers insisted they always planned to ring-fence tickets at set prices to follow your own team.

But the announcement comes just days ahead of Friday’s tournament draw in Washington DC, which Donald Trump plans to attend.

Fans will have to wait until Saturday to know exactly where and when their teams will be playing in next summer’s tournament.

Variable pricing – fluctuating based on demand – has never been used at a World Cup before, raising concerns about affordability.

England and Scotland fans have been sharing images in recent days of ticket website images highlighting cost worries.

But world football’s governing body said in a statement to Sky News: “FIFA can confirm ringfenced allocations are being set aside for specific fan categories, as has been the case at previous FIFA World Cups. These allocations will be set at a fixed price for the duration of the next ticket sales phase.

“The ringfenced allocations include tickets reserved for supporters of the Participating Member Associations (PMAs), who will be allocated 8% of the tickets for each match in which they take part, including all conditional knockout stage matches.”

FIFA says the cheapest tickets are from $60 (£45) in the group stage. But the most expensive tickets for the final are $6,730 (£5,094).

There will also be a sales window after the draw from 11 December to 13 January when ticket applications will be based on a fixed price for those buying in the random selection draw.

It is the biggest World Cup with 104 matches after the event was expanded from 32 to 48 teams. There are also three host nations for the first time – with Canada and Mexico the junior partners.

FIFA defended using fluctuating pricing.

“The pricing model adopted for FIFA World Cup 26 reflects the existing market practice for major entertainment and sporting events within our hosts on a daily basis, soccer included,” FIFA’s statement continued.

“This is also a reflection of the treatment of the secondary market for tickets, which has a distinct legal treatment than in many other parts of the world. We are focused on ensuring fair access to our game for existing but also prospective fans.”

The statement addressed the concerns being raised about fans being priced out of attending.

FIFA said: “Stadium category maps do not reflect the number of tickets available in a given category but rather present default seating locations.

“FIFA resale fees are aligned with North American industry trends across various sports and entertainment sectors.”

Ireland, Northern Ireland and Wales could also still qualify.

Business

Rachel Reeves hit by Labour rural rebellion over inheritance tax on farmers

Published

6 hours ago

December 3, 2025

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Rachel Reeves hit by Labour rural rebellion over inheritance tax on farmers

Chancellor Rachel Reeves has suffered another budget blow with a rebellion by rural Labour MPs over inheritance tax on farmers.

Speaking during the final day of the Commons debate on the budget, Labour backbenchers demanded a U-turn on the controversial proposals.

Plans to introduce a 20% tax on farm estates worth more than £1m from April have drawn protesters to London in their tens of thousands, with many fearing huge tax bills that would force small farms to sell up for good.

MPs voted on the so-called “family farms tax” just after 8pm on Tuesday, with dozens of Labour MPs appearing to have abstained, and one backbencher – borders MP Markus Campbell-Savours – voting against, alongside Conservative members.

In the vote, the fifth out of seven at the end of the budget debate, Labour’s vote slumped from 371 in the first vote on tax changes, down by 44 votes to 327.

‘Time to stand up for farmers’

The mini-mutiny followed a plea to Labour MPs from the National Farmers Union to abstain.

“To Labour MPs: We ask you to abstain on Budget Resolution 50,” the NFU urged.

“With your help, we can show the government there is still time to get it right on the family farm tax. A policy with such cruel human costs demands change. Now is the time to stand up for the farmers you represent.”

After the vote, NFU president Tom Bradshaw said: “The MPs who have shown their support are the rural representatives of the Labour Party. They represent the working people of the countryside and have spoken up on behalf of their constituents.

“It is vital that the chancellor and prime minister listen to the clear message they have delivered this evening. The next step in the fight against the family farm tax is removing the impact of this unjust and unfair policy on the most vulnerable members of our community.”

The government comfortably won the vote by 327-182, a majority of 145. But the mini-mutiny served notice to the chancellor and Sir Keir Starmer that newly elected Labour MPs from the shires are prepared to rebel.

Speaking in the debate earlier, Mr Campbell-Savours said: “There remain deep concerns about the proposed changes to agricultural property relief (APR).

“Changes which leave many, not least elderly farmers, yet to make arrangements to transfer assets, devastated at the impact on their family farms.”

Samantha Niblett, Labour MP for South Derbyshire abstained after telling MPs: “I do plead with the government to look again at APR inheritance tax.

“Most farmers are not wealthy land barons, they live hand to mouth on tiny, sometimes non-existent profit margins. Many were explicitly advised not to hand over their farm to children, (but) now face enormous, unexpected tax bills.

“We must acknowledge a difficult truth: we have lost the trust of our farmers, and they deserve our utmost respect, our honesty and our unwavering support.”

Labour MPs from rural constituencies who did not vote included Tonia Antoniazzi (Gower), Julia Buckley (Shrewsbury), Torquil Crichton (Western Isles), Jonathan Davies (Mid Derbyshire), Maya Ellis (Ribble Valley), and Anna Gelderd (South East Cornwall), Ben Goldsborough (South Norfolk), Alison Hume (Scarborough and Whitby), Terry Jermy (South West Norfolk), Jayne Kirkham (Truro and Falmouth), Noah Law (St Austell and Newquay), Perran Moon, (Camborne and Redruth), Samantha Niblett (South Derbyshire), Jenny Riddell-Carpenter (Suffolk Coastal), Henry Tufnell (Mid and South Pembrokeshire), John Whitby (Derbyshire Dales) and Steve Witherden (Montgomeryshire and Glyndwr).