China's economy is flailing. Here's how its problems could spill into global markets.

China's economy is currently grappling with challenges such as an unpredictable real estate market and subdued consumer spending. Insiders in the field have expressed concerns about the negative impact this could have on global markets and countries like the United States. Prominent figures such as Janet Yellen and Joe Biden have recently highlighted the potential risks associated with China's economic difficulties spreading to other regions.

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China has established itself as a dominant force in the international arena, exerting a significant influence on the global financial system, thanks to several years of consistent progress, substantial trade activities, and a growing and industrious populace.

Following President Xi Jinping's decision to ease Beijing's strict "zero-COVID" measures in December, industry professionals anticipated a swift resurgence in Chinese demand and business. The global economy was expected to be significantly impacted by the robust reopening.

However, the situation has turned out differently, and professionals suggest that the consequences of China's economic setbacks could extend far beyond its boundaries.

China, the economy that ranks as the second-largest globally, appears remarkably fragile as it emerges from the pandemic. Its challenges have grown so significantly this month that Treasury Secretary Janet Yellen cautioned about the risks China poses to the United States, coinciding with President Joe Biden comparing it to a potentially hazardous situation.

Chinese authorities have cautioned analysts about portraying the economy in a pessimistic manner, despite the evidence clearly illustrating a struggling economy.

The data released on Tuesday, just shortly after China's central bank unexpectedly reduced interest rates, revealed disappointing performance in China's industrial production, retail sales, and exports. Surprisingly, the report excluded any mention of the alarming youth unemployment rate, which had reached an all-time high of 21.3% in the previous month.

All of this is happening in the context of an unstable real estate industry, highlighted recently by Evergrande's declaration of bankruptcy, as it is the most financially burdened property developer globally, and Country Garden Holdings failing to make two scheduled coupon payments on its bonds.

Here's how this could potentially impact the remaining global markets.

As a significant player in international commerce, China is not the sole entity dealing with these challenges.

According to Alfredo Montufar-Helu, the individual in charge of the China Center at the Conference Board, it was mentioned to Insider that China continues to contribute around 30% to the overall growth of the world. Therefore, any decline in their domestic performance will have significant consequences on global markets.

"Contrary to what happened during the Great Financial Crisis, China will not spearhead the worldwide economic rebound following the COVID-19 pandemic," he expressed. "Due to persisting challenges in its economy, its growth trajectory may decelerate even more, thereby intensifying the already substantial burdens weighing on the global economy."

A noticeable impact can already be observed in the decrease of Chinese interest, resulting in a significant decline in international trade. The latest data reveals a continuous decline in China's exports over the past three months, while imports have experienced a decline for five months in a row.

On the positive note, reduced demand alleviates the risk of inflation, which may potentially provide some relief for the Federal Reserve and other central banks in their ongoing struggle against rising prices within their economies.

However, this could adversely affect manufacturers and suppliers in the United States and other economies, cautioned Montufar-Helu. Finding a substitute for the lost demand might prove to be quite challenging.

Keith Hartley, the CEO of LevaData, a company that specializes in analyzing supply chains, highlighted that China's consumption of global commodities is substantial. Therefore, a decrease in demand from China would result in excess inventory for US firms, leading to reduced profits. Additionally, countries depending on commodity exports would experience a decline in business opportunities.

According to Hartley, industries in the United States that heavily rely on exporting their products to China, such as agriculture and manufacturing, may experience a decline in sales. This could potentially lead to an economic slowdown and the unfortunate consequence of job losses.

According to him, if Chinese exports continue to fall for a long time, it could have negative effects on manufacturing industries in other countries and cause disturbances in supply chains. However, he also mentioned that this situation presents an opportunity for countries such as the US to explore different sourcing strategies and start moving their manufacturing operations away from China.

American corporations that have connections to China are already experiencing the impact of the economic downturn.

Several chemical and manufacturing companies have revealed reduced sales for the second quarter, leading some of them to revise their projections for the remainder of the year, according to a report by Insider's Noah Sheidlower on Thursday.

Due to the prevalent decrease in consumer prices in China, there is a possibility of Americans facing increased costs for cars and personal-care items. Additionally, several companies might experience a decline in revenue, leading to potential job cuts.

According to Dexter Roberts, a senior fellow at the Atlantic Council, a major concern is that China will begin transmitting deflation globally, causing harm to the profits of companies in the United States and across the globe.

A decline in China's economy would negatively impact numerous American businesses that generate a large portion of their income from China. Additionally, there are other companies that may not have direct investments or sales ties with China, but would still suffer due to the ripple effects of global deflation.

The decrease in demand for products and services within China and the lack of spending by consumers can be attributed to uncertainties in the country's real estate market. Additionally, there are potential risks that may extend into other sectors as well.

According to Montufar-Helu from The Conference Board, Chinese households' wealth is primarily composed of housing assets, constituting approximately 70% of their total wealth. Due to the prevailing uncertainty, individuals are choosing to retain their cash instead of utilizing it for expenditure.

He mentioned that the instability in the property market is having a negative impact on the overall growth of China. This is reducing the production of goods and services, causing people to spend less, reducing the income of the government, and creating more risks in the financial sector.

According to Montufar-Helu, the surge in the real estate market in the last ten years has caught the attention of a large influx of foreign investment, including money from the United States. He notes that Chinese builders are currently encountering major difficulties in accessing sufficient funds, which consequently increases the chances of them failing to meet their financial obligations on bonds denominated in US currency.

As the housing dilemma intensifies, China will face greater challenges in stabilizing the situation, which will have a long-term negative impact on global economic expansion.

During a recent interview with CNBC, David Roche, the president and global strategist at Independent Strategy, expressed his belief that the Chinese economic model has reached its limit and is highly unlikely to recover. Roche even went so far as to metaphorically compare it to an object stranded on a beach, effectively emphasizing the bleakness of the situation.

He mentioned that the property market's difficulties have not been completely factored into the worldwide markets.

"They lack the strategy to effectively eliminate burdensome debts and problematic assets, and simultaneously, they won't be able to depend on their customary methods of achieving progress," remarked Roche. "That's the key issue at hand."