China’s economic stability is increasingly under scrutiny as it grapples with deflation and a host of internal challenges.

The country saw a decline in consumer prices in July, marking the first time this has occurred in over two years.

Several factors are contributing to China’s economic downturn. These include a rising burden of local government debt, weakened imports and exports, difficulties in the housing market, and a surge in youth unemployment.

These issues are causing unease not only within China but also among global observers. Concerns are growing about the potential repercussions for the international economy.

China’s economic health is increasingly seen as a barometer of the global economy, and any significant downturn in the world’s second-largest economy could have far-reaching consequences.

Country Garden deal

Country Garden, one of China’s largest property developers, has found itself ensnared in a dire financial crisis, with estimated debts of 1.43 trillion yuan ($196 billion) recorded by the close of 2022. This week, the company reported staggering losses of 48.9 billion yuan for the first half of this year.

These ominous developments have ignited widespread concerns that the beleaguered company could face a collapse, potentially sending shockwaves through China’s already beleaguered economy. The nation is grappling with record-high levels of youth unemployment and a decline in consumer spending.

China’s remarkable economic ascent has, in large part, been fueled by the property and construction sectors, which collectively constitute approximately a quarter of the country’s gross domestic product (GDP).

In a significant move to stave off an immediate financial catastrophe, Country Garden’s bondholders convened this week to vote on the postponement of a 3.9 billion yuan ($535 million) bond repayment, providing the company with a lifeline to regain its financial footing. Had the bondholders rejected this extension, Country Garden would have faced the ignominious distinction of becoming the largest Chinese real estate firm to default since its rival, Evergrande, encountered a similar fate in 2021.

However, the latest reports suggest that bondholders have decided to grant Country Garden a reprieve, agreeing to extend the bond repayment deadline until 2026. The company itself has yet to officially confirm the outcome of the vote.