HomeContact Site map   Google    www    iipm think tank
   
   
Home Scrutiny Publications Under Cover Mus'ings  
 

Home > Scrutiny > Hard landing for China’s economy?

  
   
     
   Case Studies  
       
  Marketing    
  Human Resource    
  Information Technology    
  Finance    
  Strategy    
       
 
     
   Industries  
       
  Steel    
  Glass    
  Banking    
  Prophylactic    
  Auto    
  Hospitality    
  Energy    
       
 
     
   Other links  
       
  IIPM    
  Planman Consulting    
  Planman Marcom    
  Planman Technologies    
  Daily Indian Media    
  Planman Financial    
  4P's Business and Marketing    
  Business and Economy    
  The Daily Indian    
  The Sunday Indian    
  Arindam Chaudhuri    
  GIDF    
       
 
  
         
Scrutiny
  
Hard landing for China’s economy?
After years of hurricane growth, led by insatiable demand in the developed countries for cheap Chinese products, the dragon economy has hit a speed bump the size of its Great Wall. The global slowdown is now beginning to hurt China and its export-led, debt-fuelled investment growth model is coming apart
30/08/2013

China’s resilience to the global economic slowdown is beginning to crumble. The economy is showing sure signs of strain and it looks as if the recessionary headwinds will blow down the once impregnable Chinese wall the same way as it has taken down other emerging economies. While China’s Q2 GDP data (growth decelerated to 7.5%) have confirmed the slowdown, the decline in HSBC Flash PMI to an 11-month low of 47.7 is a clear indicator that economic distress is fast creeping up on the once unassailable giant. With growth coming in at under 8% for five straight quarters, China’s vaunted economic strength is now looking increasingly vulnerable.

After years of export-led growth and debt-fuelled investment, which are fast bottoming out as a result of the economic ague in China’s leading markets, the country’s GDP is set to fall to below 6-7% after many years of breakneck growth rate at above 10%. Exports and imports declined in June, underscoring the severity of the slowdown. While overseas shipments fell 3.1% from a year earlier, the most since the global financial crisis, imports dropped 0.7%. The decline in trade growth is a big blow for the country’s manufacturing sector. Feeling the heat of the slowdown, many companies such as Rongsheng Heavy Industries Group Holdings Limited have already sought government financial support amidst reports about the company also facing labour unrest. As per China’s Labour Bulletin, “Although China’s labor market is still slightly undersupplied, with 107 jobs for every 100 job seekers, the demand for labor in the second quarter of this year declined by 2.8% (167,000 jobs) compared with the first quarter.”

Many economic analysts blame China’s over-reliance on exports for its slowing growth rate. But contrary to the popular belief, China has been following the economic trend of its Asian neighbours, and is no exception when it comes to consumption-based economics. In a paper titled, “Poor Economic Statistics Fuel China’s Low Consumption Myth” by Jun Zhang & Tian Zhu, published this year, the authors point out that “The generally held belief that China’s consumption is too low is a myth based on inadequate theory, a misreading of official statistics and the use of market exchange rates for making international comparisons.” According to the authors, Chinese official statistics underestimate consumption expenditure on housing, they omit consumption paid for as benefits by the corporate sector, and there are a number of problems with the household expenditure surveys employed. An adjustment for statistical issues suggests that the rate of consumption is 60–65% of GDP, not the 48% based on the widely quoted official statistics figures, and is quite similar to the level experienced by other East Asian economies.

While the reasons for China’s growth tapering off can be debated ad nauseam, the question uppermost in the minds of economists is whether a slower growth rate will lead to social unrest and perhaps political chaos in the country? There are fears that slackening growth could set off an unemployment crisis that would raise the risk of social and political instability in the country. To the extent the financial turmoil spills over to the real economy of output, income, and employment, Chinese workers would suffer as more factories close down due to lack of overseas demand for their products and dwindling capital. Another apprehension is about inflation getting out of hand. In a bid to pump-prime the economy back into shape, Chinese authorities could further open the liquidity tap, thus putting the economy to the risk of inflation. However, China’s finance minister has sought to allay such fears and has said that the country is well-prepared to handle and manage a slowing of economic growth.
Many economists and China watchers contend that the country’s economic slowdown might well be a blessing in disguise. The Chinese political leadership sees the current crisis as a god-send opportunity to bring about industrial consolidation and rebalance resource consumption. China’s new leadership is betting that progress on these fronts will outweigh the downside risks they’ll face as job losses tick up in the face of slower growth. However, undertaking such economic changes is easier said than done given the challenges of recalibrating a complex, gargantuan economy. And even if China reforms more quickly, the economy is likely to slow further as it moves towards a more consumption-heavy growth. But it makes economic sense for the Chinese leadership to grasp the nettle of the slowdown now and use the current crisis as an opportunity to fashion a more stable and sure-footed model of growth for the future.

By:- Sray Agarwal
Back

  
 
 
       
Home | Scrutiny | Publications | About us | Contact us
Copyright @2010 iipm think tank. All rights reserved.