• Category: News

China Imposes a Slow Down on Country’s Economic Growth

China is working to direct its economy toward qualitative goals instead of basing its growth solely on GDP. Against a background of strikes, businesses struggling to stay afloat and workers  waiting even longer for their wages, the government is unconcerned and not in a hurry to boost economic growth.

China Imposes a Slow Down on Country’s Economic Growth

According to official figures out of China, the country’s GDP grew by 7.4 % in 2014, a drop from 7.7% in the previous year.

The government sees the economic downturn as a positive prospect as it intentionally imposes a slowdown that will see the country depend less on exports and more on domestic consumption.

However, the Chinese and the world at large are already feeling the pinch. Copper prices around the world are at an all-time low as demand in China continues to plunge. Observers also attribute the low oil prices to weaker demand in China. At the same time, the burgeoning and relatively well-off Chinese middle class is already complaining of tough economic times.

Andrew Polk, senior economist at The Conference Board’s China research group says, “The hardest hit are the upstream players and miners in the oil, steel and iron ore industry. China’s consumption has been good so far but the deliberate slowdown seems to be impacting consumption too.”

It is expected that growth in China will fall even more over the next three years as the government seeks to take control of the plunging property market and prevent excessive borrowing and spending by local governments.

The financial crisis also had a significant impact on the Chinese economy on two fronts. First, there was a decrease in global demand for Chinese products and secondly, the Yuan had to be adjusted against the dollar to prevent a total collapse. The government has learnt its lessons and it is keen to unpeg the country from its sole dependency on exports.

Polk from The Conference Board observes that wages will have to go down as businesses struggle to survive. He cautions, “When wages start to rise above productivity, companies begin to be unprofitable.”

President Xi has adamantly asked the Chinese to accept the slow growth as the ‘new normal.’ State media has been quick to assure the public that the government is in control of the economy and intentional slowdown is for the country’s long-term benefit.

Following the economic restructuring, officials say that the country’s economy will be more sustainable and China will be keener on curbing the extensive pollution that characterizes the country.

Speaking at the 2015 Davos World Economic Forum, Li Keqiang, China’s prime minister asserted that the country will forge ahead with its policy for economic restructuring that will see medium to fast growth and thus avoid a hard landing.

 

 

Impact of the ‘new normal’ 

For people working in the commodity industries, the slow economic growth could have a bigger and negative impact on them. However, other sectors such as tech, culture, film, music and healthcare could benefit from the down turn.

Market experts warn of the possibility of social instability if the downturn goes below 7%. Unemployment and financial uncertainty could wreak havoc on other macro-economic factors such as investments in the real estate sector, and the stability of the Yuan, factors that investors must be on the lookout for.

 

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