• Category: News

The Chinese Economic Slowdown is Here, What Does it Mean?

China, the world’s second largest economy has lowered its 2015 growth targets by 7%. This is arguably the slowest growth in more than two decades. Figures so far indicate that with the current performance, it might be difficult for the economy to attain even this lower growth level.

Although China’s slow economic growth far outdoes most other economies, the slowdown is a major global concern. Most analysts had expected that GDP in China would remain over 8% until 2017.

The economic decline has seen major sell-offs of commodities including coal, gold and iron ore over the past two years. The deceleration of the Chinese economy is expected to continue and perhaps become worse.

Over the past three years, the country has grown at an average rate of 10% annually. It was certainly expected that this growth would slow down and stabilize at some point. China’s exponential economic growth can be attributed to growth in productivity, capital and labor. At the same time, a slowdown in these three factors has triggered the present economic decline in the country.

Even though productivity, capital and labor are not growing at the same rapid rate as they have in the past three decade, the greatest factor that can be attributed to the slowdown is the credit crisis facing the country.
China’s total debt since 2008 has increased by an estimated 250% of GDP. This credit was instrumental in supporting the country’s rapid growth and to even survive the 2007-2009 global financial crisis. However, it also caused the country to accumulate too much debt most of which was awarded to property developers.

Over the past few years, the property market in the country grew drastically, accounting for up to 15% of GDP. However, this is all now coming to a slowdown, with the country experiencing a surplus of unsold homes. Property growth and sales have fallen by more than a fifth since the start of 2015.
According to economic analysts, it could take many years before China gets over the effects of the credit crisis and mounting debt. The country’s president, Xi Jinping, has sought to slow down the economy and rather emphasize on structural reform.

As a result of the new fiscal and monetary policies imposed by the Chinese government, the country’s economic performance continues to send jitters across the global economic, with many terming this slowdown worse than the Greek crisis.

In late June and early July, investors went into a panic when the Chinese stock market showed early signs of crumbling. This caused gold, copper and oil prices to plummet. Although Chinese equities stabilized for several weeks following wide-ranging government interventions, the decline and instability resumed shortly afterwards, with stocks falling by up to 8.5%.

Decline in China will have significant impact on the import markets of over 43 countries, according to Joseph Quinlan, a US economic strategist. From Australia, South East Asia, Latin America, Middle East to Africa, China has been a major import partner for countries in these regions. The prevailing Chinese economic slowdown could cause a trigger effect in the most vulnerable of these countries.
Although it is certain that the country will bounce back from the credit binge, analysts are unsure that China will ever experience double-digit economic growth.


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