China's bubble burst

Tuesday, August 29, 2023

How's it going? It's Izzie Ramirez, and here's what we're following today:

First up: China's economic woes, explained.

In other news: Florida braces itself for Hurricane Idalia, UNC-Chapel Hill professor killed in shooting, and Biden to slash Medicare prices for 10 drugs.

See you in your inbox tomorrow!

SPOTLIGHT

China's economy is slowing down. What gives?

Li Xueren/Xinhua via Getty Images

You've probably seen the headlines: China's economy is down in the dumps. But the story of the nation's unimpeded economic rise (and perhaps fall) is much more complicated than what's on the surface.

The lowdown:

When China began to ramp up engagement with the world economy around four decades ago, its housing, infrastructure, education, and services were very poor.
So to catch up, the country turned toward an investment-led model, where it poured money into projects like bridges, airports, and hospitals. By the mid-2000s, a considerable amount of infrastructure progress was made.
But that investment playbook has been faltering in recent years. It produced growth, but it also increased China's debt, so much so that right now, it's triple the amount of China's economic output.

The stakes: With the investment model wavering, the consequences for China span several sectors: real estate is stalled, exports and foreign direct investment are down, youth unemployment reached a record high, and China slipped into deflation.

All of this could have profound economic, political, and social fallout for China, and the rest of the world, writes foreign policy reporter Jen Kirby.

China has the second largest economy in the world — any downturns will likely cause a global contraction in spending, which in turn can negatively impact the day-to-day lives of people. She spoke with Stephen Morgan, a professor of Chinese economic history, to dig deep into the potential pivots Beijing has.

Read Jen's interview here.

NEXT UP

Hurricane Idalia intensifies, makes its way toward Florida

Michael Laughlin/Sun Sentinel/Tribune News Service via Getty Images

Here's what you need to know about the storm:

After passing Cuba, Idalia turned into a Category 1 hurricane earlier today. It's expected to become a Category 3 storm, on track to make landfall Wednesday morning in Florida's Big Bend region on the Gulf Coast. [ABC News]
There will be strong winds and life-threatening storm surges. The National Guard is on call and evacuations are well underway. [CNN]
Cars may stop working mid-evacuation due to "widespread" fuel contamination at gas stations alongside Florida's Gulf Coast. Diesel gas was accidentally placed in tanks meant for regular gas, Gov. Ron DeSantis said. Using the wrong fuel type can damage a car or generator. [NPR]
If you're in the potential affected areas, start preparing now — and help out your community, too. Check in on your neighbors and get in contact with local organizations if you have the means to assist. [Vox]
Why this year's hurricane season is so strange: warmer oceans. Water temperatures in the Atlantic Ocean are at the highest levels since at least 1981. [Vox]

PRESS PLAY

China's young and restless

China's ambitious youth planned to cash in on their country's meteoric rise on the world stage. Instead, many of these 20-somethings are disillusioned and "lying flat." Economist Nancy Qian explains why.

Listen now ▶

AROUND THE WEB

A gunman killed a University of North Carolina-Chapel Hill faculty member yesterday. The university and nearby K-12 schools were under lockdown for around three hours on their first day back to school. [Axios]
The Biden administration released its list of 10 drugs that Medicare will target for price cuts. The list includes blood thinners and diabetes drugs. The power to negotiate prices comes from the Inflation Reduction Act passed last year, but drugmakers are fighting against the cuts. [NPR]
Amazon CEO says things will "probably not work out" for employees unless they work at the office at least 3 days a week. Almost 30,000 employees signed an internal petition against the return-to-office mandate in May. [The Guardian]
Mexican fans welcome Taylor Swift as she launches the international leg of her record-breaking world tour. The fan-made merch and memes have gone viral on social media. [NBC News]