Hong Kong CNN—
China has long been the driving force behind global growth.
But this has been happening for the past few weekseconomic downturnhas worried international leaders and investors who no longer expect it to be a bulwark against weaknesses elsewhere. In fact, for the first time in decades, the world's second largest economy is itself a problem.
Hong Kong Hang Seng(HSI)The index entered a bear market on Friday after falling more than 20% from its latest high in January. Last week, the Chinese yuan fell to a 16-year low, prompting the central bank to step up its biggest defense of the currency it has set by setting an exchange rate against the dollar well above its estimated market value.
The problem is that economic growth is weakening after activity picked up at the start of the year following the lifting of Covid-19 restrictions. Consumer prices are falling, the housing crisis is deepening and exports are weakening. Youth unemployment has risen so much that the government has stopped publishing figures.

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worsen the situationgreat builderIwell-known investment companyhave failed to make payments to their investors in recent weeks, rekindling fears thatfurther deterioration of the situation in the housing marketmay lead to increased risks to financial stability.
The lack of decisive action to boost domestic demand and fears of contagion triggered a fresh round of downgrades in growth ratings, with several major investment banks cutting their forecasts for China's economic growth below 5%.

Panorama of Shanghai, the financial capital of China, taken on August 7
"We are cutting our forecasts for China's real GDP growth ... as the housing market slowdown deepens, external demand continues to weaken and policy support is weaker than expected," UBS analysts wrote in a research note on Monday.
Researchers from Nomura, Morgan Stanley and Barclays had previously revised their forecasts downward.
That means China may be falling short of the official growth target of "around 5.5 percent," which will delight Chinese leaders under President Xi Jinping.
That's a far cry from the 2008 global financial crisis, when China launched the world's largest stimulus package and became the first major economy to emerge from the crisis. It is also a reversal of the situation from the beginning of the pandemic, when China existedthe only major developed economyavoid recession. So what went wrong?
property issues
The Chinese economy has been stagnant since April due to economic growth momentumstrong startdisappeared within a year. But concerns intensified this month after Country Garden, once the country's biggest developer by property sales, and Zhongrong Trust, a leading trust company, defaulted on payments.
Country Garden is reported to be in default on two dollar bondsscare investorsand brought back memories of Evergrande, whose bankruptcy in 2021 marked the start of the property crisis.
One secondEvergrandeWith the company still in debt restructuring, Country Garden's problems have raised new concerns about the Chinese economy.
Beijing has taken a number of measures to support the recovery of the real estate market. But even the strongest players are now on the brink of bankruptcy, underscoring the challenges facing Beijing in trying to contain the crisis.
Meanwhile, developer insolvency appears to have spread to the country's $2.9 trillion mutual fund industry.
Zhongrong Trust, which managed $87 billion in funds for corporate clients and high-net-worth individuals, failed in a series of investment products worth about $19 million in at least four companies, the company said earlier this month.
According to a video shared by CNN on Chinese social media, angry protesters even recently demonstrated in front of the office of a trust company, demanding payment for high-performance products.
"Further losses in the real estate sector could translate into greater financial volatility," said Julian Evans-Pritchard, director of China economics at Capital Economics.
"As domestic funds increasingly seek safety in the form of government bonds and bank deposits, more and more non-bank financial institutions may face liquidity problems," he added.
local government debt
Another serious problem ismunicipal debts, which increased mainly as a result of the sharp decrease in income from land sales due to the decrease in real estate values, as well as the continued impact of quarantine costs due to the pandemic.
Severe fiscal pressures at the local level not only pose serious risks to Chinese banks, but also limit the government's ability to stimulate economic growth and expand public services.
Beijing has so far promised a steady stream of stimulus measures, including interest rate cuts and other measures to support the real estate market and consumer businesses.
But it happenedavoided itall important steps. Economists and analysts told CNN that this was because China was too indebted to stimulate the economy as it was 15 years ago during the global financial crisis.
At the time, Chinese leaders prepared a 4 trillion yuan ($586 billion) tax package to cushion the effects of the global financial crisis. But the measures, which focused on government infrastructure projects, also resulted in an unprecedented credit expansion and a massive increase in local government debt, from which the economy is still struggling to recover.
"While the current economic downturn also has a cyclical component that warrants stronger stimulus measures, policymakers seem concerned that their traditional policy approach will lead to further increases in debt levels that will plague them again in the future," he said. Evans-Pritchard.
On Sunday, policymakers in Beijing reiterated that reducing the risk of systemic local government debt is one of their top priorities.
The People's Bank of China, the Financial Regulatory Authority and the Securities Regulatory Authority jointly pledged to cooperate to face this challenge, strongstatementfrom the central bank.
demographic decline
In addition, China faces some long-term challenges, such as a population crisis and strained relations with key trading partners such as the United States and Europe.
Total fertility rate in the country, average number of children per woman Wille According to a recent report by the state-run Jiemian.com, based on an industry study by the National Health Commission, the value of a lifetime fell from 1.30 just two years earlier to a record low of 1.09 last year.
This means China's birth rate is now even lower than in Japan, a country long known for its aging population.
Earlier this year, China released data showing its populationit started to decline last yearFor the first time in six decades.
"China's aging population poses significant challenges to its growth potential," Moody's Investors Service analysts said last week in a research report.
Reduced labor supply and higher spending on health and social care can lead to larger budget deficits and debt. A smaller workforce can also erode domestic savings, leading to higher interest rates and lower investment.
"Demand for housing will decline in the long term," they added.
Evans-Pritchard said demographics, along with slowing rural-urban migration and the geopolitical divide, are "structural" and largely beyond the control of policymakers.
"The overall picture is that the upward trend has declined significantly since the start of the pandemic and is expected to decline further in the medium term," he said.