China’s Economic Problems and Slow Growth Rate †Free Samples

Question: Why is Chinas Growth Rate Slowing Down? Answer: After experiencing an extraordinary rapideconomic growth for more than a decade, China is currently experiencing an excruciating slowdown, thus shifting from state investment led to consumption and service driven economy. Itseconomic growth weakens as the GDP further slows down in 2016Q4 (6.8% y/y against 6.9%y/y in Q3; lowest since 2009) as the retail sales weakens (10.7%y/y in Apr-17 against 10.9%y/y in Mar-17), fixed asset investment edges down (8.9% y/y in Apr-17 against 9.2%y/y in Mar-17), while industrial output reflects the major disappointment in Mar-17 (6.5% y/y against 7.6% y/y in Mar-17),albeit a moderation in auto sales industry is noted. Key industrial commodity such as iron ore prices have also slowed down as a result of the waning demand (Acton, 2017). Corporate debt increased from 60% to 165% of GDP in 2017, thus forming a largest share in Chinas total debt structure, following business defaulters and bankruptcies, low profits and returns on investment and the likelihood of yet another slowdown in real estate sector (Minnich, 2016). In fact, IMF has to revise their growth rate cut which has further created fear among policymakers, investors and consumers thus shaken their confidence. The outlook for the year 2017 suggests that the growth would further reduce to 6.5% following the hike in the interest rates by the central Bank (Jacob, 2017). Cheap labor, high level of investment and global demand for Chinese goods are some of the highlights of the economys high level of performance. Chinas unusual investment level had led to fall in the returns and very much have challenged its financial system as they finance such investments. So, as the demand for cheap export fall while consumption expenditure continues to decrease, investment has been the Chinas engine of growth financed by loans, bonds and informal lending (McGrath,2016). While US and Japan used government spending to stimulate growth, China controlled banking sector and have a policy of easy access to credit to stimulate the slowing economy. Moreover, it has followed accommodative monetary policy reducing the interest rate and slashing it thrice since Nov. However, China is reliant on foreign cash inflows for monetary growth so it is very unlikely that this policy is going to help (Minnich, 2016). Hence, to revive the investors confidence across globe, there is an urgent need to reduce investment level in order to make returns to capital attractive. At the same time, consumption expenditure should be increased by the same amount in order to balance out so that the overall aggregate demand isnt adversely impacted. This implies transfer of purchasing power from bourgeois class to the workers, thus causing a rift between the two classes. It has become prominent that china needs to reformulate its social andeconomic reform and align them as per the need of an hour, thus enable them to achieve stability in the economy. Thus, current capitalist model is likely to fall apart in coming years as crises- economic, social and ecological converges in China(Li, 2012). References Jacobs, S. (2017). China's industrial production slows down. [online] Business Insider. Available at: https://www.businessinsider.com/china-industrial-production-april-2017-2017-5?IR=T [Accessed 15 May 2017]. Jacobs, S. (2017). China's industrial production slows down. [online] Business Insider. Available at: https://www.businessinsider.com/china-industrial-production-april-2017-2017-5?IR=T [Accessed 15 May 2017]. Janda, M. (2017). 'Meaningful slowdown' for Chinese economy. [online] ABC News. Available at: https://www.abc.net.au/news/2017-05-15/china-economic-data-retail-sales-investment/8527022 [Accessed 15 May 2017]. Li, D. (2012). A Dying Model: Chinese Capitalism. [online] The Diplomat. Available at: https://thediplomat.com/2012/11/a-dying-model-chinese-capitalism/ [Accessed 15 May 2017]. McGrath, P. (2017). China posts slowest economic growth in 25 years. [online] Abc.net.au. Available at: https://www.abc.net.au/7.30/content/2015/s4391078.htm [Accessed 15 May 2017]. Minnich, J. (2017). Chinas economic problems will come to a head in 2017. [online] MarketWatch. Available at: https://www.marketwatch.com/story/chinas-economic-problems-will-come-to-a-head-in-2017-2016-11-23 [Accessed 15 May 2017].