Good morning, Peter Vanham here in Geneva, filling in for Alan.

China’s economy faces the test of a lifetime as it tries to revive its fortunes amid an unprecedented set of challenges: a real estate crisis, deflation, a consumer confidence crisis, and a declining population.

The headline news this weekend came from Country Garden Holdings, one of the largest and previously most stable real estate developers in the country. It missed a debt payment, and now faces the risk of a default. The company said it had underestimated the market downturn and is now confronting the largest challenge since it was established in 1992.

But that news is just the latest worrisome headline. China’s real estate woes started in 2021 after the central government intervened to limit the sector’s ballooning debt. The move backfired, however, as it led to the near-collapse of Evergrande, at that point the largest real estate developer in the country, as well as the bankruptcy of several other real estate developers, and a steep drop-off in prices.

Yet even if further real estate bankruptcies can be avoided, the damage to the Chinese economy has largely been done. As real estate prices fell, the economy went into a deflationary spiral, leading, in turn, to a prolonged crisis in consumer confidence, and an overall slump in economic growth. In March, China’s statistical office even stopped publishing its monthly consumer confidence data after the index failed to recover to an “optimistic” outlook for over a year.

Two weeks ago, then, the government decided to act more forcefully. It expanded its economic stimulus package, subsidizing domestically-produced goods and tourism, as well as home renovation. But the measures may be too little, too late.

First, as my former colleague at the Financial Times, global China editor James Kynge, noted this weekend, “fragile consumer confidence is just one sign of a malaise that is not merely economic;" that malaise also includes a “strange hybrid of psychological and political factors."

To be more precise, Kynge, who has lived on and off in China since the late 1980s and witnessed the Tiananmen protests firsthand, said: “Under Xi Jinping, China’s leader, a concept of ‘comprehensive national security’ has come to dominate almost every aspect of life. The economy, culture, society, technology, ecology and others are officially classified as matters of national security deemed essential to the party-state’s survival.”

And second, China also still faces the deeper problem that the time to “get rich before they get old” has started to run out. An aging population plus a drop-off in birth rates means China's population is shrinking, falling by 850,000 people last year, according to the country's statistics bureau. The decline in China's population will increasingly drag down the economy. That reality will have consequences for anyone involved in China’s fortunes, whether at home or abroad.

More news below.

Peter Vanham
peter.vanham@fortune.com
@petervanham

This story was originally featured on Fortune.com

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