Deepansh Bhati

The author is a student at Ryan International School, Greater Noida

Chinese Economy is confronting slowest growth in almost three decades with net imports plunging sharply by 7.6%”

The world’s second largest economy in terms of GDP and the largest in terms of Purchasing Power Parity, is confronting a sluggish economic growth since January 2019 with imports plunging sharply by 7.6%. The country’s economy had a trend of exhibiting a double digit economic growth. This trend sustained till 2018 with an annual economic growth rate at 10%. With the onset of nineteenth year of 21st century, China’s economic progress started abating and slumped down to 6.6% in the first quarter and economists around the globe deduce that it will further settle at 3.5% – 4.5% per annum. For the last three decades, Chinese economy has unfolded as a mature economy, evincing a dominant role in the global economic pursuit. At the turn of the 21st century, it accounted for 7% of the global economic activity which stands now at 20%. This implies China manifests a bestriding stature in the economic world.

Economic slowdown is not a very startling event for an economy like China. As a mature economy this was anticipated. A mature economy cannot be going on developing without halting or slowing its pace. The slowdown is not fostered by a single event; it came into effect due to diverse causes. The paramount cause is the US – China Tariff War. Due to increased tariff imposed by United States on Chinese Imports, the aggregate demand in the economy has abated. As of December 2018, its imports fell by 7.6% which is a perturbing rate. The industrial produce is going down and confronts a risk of disposing off the produce due to lukewarm demand. The manufacturing activity in the country is contracting for the first time in the history of the Chinese economy. New orders are falling and retail sales are eased. The adverse impact is the low profit margin, discouraged fresh investments and startups, and a severe risk of job loss. The second reason behind the slowdown is the ageing population and inefficient workforce. As per a report, the economy is operating well under its Production Possibility Frontier with capacity utilization being stagnant at 45 – 50%.  Also, country’s household, government and corporations have debts totaling 300% of the GDP. All the above mentioned factors are leading the Chinese economy towards a receding progress.

The Chinese administration has taken steps towards creating a stimulus in the economy. Taxes amounting to $ 238 billion are cut by the government; Import duties are reduced to spur the demand in the Chinese market. The central bank of China has reduced the CRR and SLR and has made the loans cheaper to encourage spending in the economy. The radical apprehension is that forceful easing of the economy may pressurize YUAN and aggravate the debt levels, with money sinking into less efficient and speculative ventures. This may further afflict the economy.

The Chinese economy is a dominating one; hence its slowdown will palpably affect the global economy. The weakening demand is perturbing the exporters to China. Half of the global production of Steel, Cement, Copper and Coal goes to China, and if China is not buying, global demand abates, leading to global reduction of prices. Therefore being a huge economy, China influences global price prevalence. China accounts for two third of asia pacific growth. Therefore slowed pace of Chinese economy directly means abated pace of asia pacific growth. The impact will be severe on trade reliant countries like Singapore, Hong Kong, South Korea and Taiwan. Indian economy is a resilient and a large economy, with less reliance on trade which provides India a stronger domestic base; hence Impact on India will not be much severe. Owing to trade uncertainties between China and United States, the companies are delaying their investments. These companies are pushed to explore new markets such as Vietnam and India. Also if YUAN weakens, exports will be cheaper. These may be positive aspects for India.

To eke out from the menacing economic environment, China needs to push up the spending. The aggregate demand in the economy has to be given a stimulus.

Nevertheless, China has many a times evinced that every crisis is an opportunity. Today China is the world leader in the field of technology, nuclear energy and infrastructure.

Therefore, amidst US – China Tariff War it will be an assessment for the world’s second largest economy.

image credit: Pixabay

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