03 Apr 2015 Reveals a Sad Story for the Chinese Economy
China’s sinking economic growth rate of an unpromising 7% in 2015 has been recorded as the slowest expansion since the last two decades. While this low hit may not be panicking for the country, considering its “yet sustaining” growth to progress over most nations, its unexpected rather subdued faring is a concern. Chinese growth rates of about 10% on an average per year from the last three decades are expected to unavoidably dwindle at the elementary level. The sudden trading of international commodities, ranging from iron ore to coal, over the past couple of years is certainly the effect of decelerated economy.
China’s real-estate sector and swollen debts
Heavily indulging into credit activities for seeing a breakthrough growth in crucial intercontinental crisis has been China’s primary rescue strategy. However, with total debt of whopping 250% from government to corporate segments, it has involuntarily accepted a hefty refunding responsibility. While it relies majorly on its real-estate sector, thus allowing loads of credits to flow to, the rising number of unsold estate properties is crushing down the much craved for growth aspirations.
Taking into account the same period of last year, newborn estates did a nearly 1/5th growth decrease in the first 60 days of this year. This was very unusual compared to its growth standards that contributed for 25-30% of the economic growth previously. Considering the disappointing performance of real-estate sector, it could bear a thorough diminution. Although it may see a small risk of dire crisis because of its closed financial system, China would certainly need more time to come out of unwelcomed debts.
China’s lackluster performance in manufacturing
“Company downsizing policies contributed to a further decline in manufacturing employment,” said Annabel Fiddes, an economist from Markit Economics, “Any savings were generally passed on to clients as part of attempts to attract new business, suggesting a further squeeze on profit margins.”
China’s downturn in the manufacturing sector raised eyebrows when two evidential surveys reported substantial shedding of industrial employment. Recently, financial services company HSBC reported its fastest employment contraction in the last 7 months or so which followed the 17th consistent month of employment reduction. In a private survey, while the Purchansing Manager’s Index (PMI) by HSBC stated a declined 49.6 reading in March compared to February’s 50.7, National Bereau of Statistics’s PMI reading indicated a lazy growth of 0.2 in March since the 49.9 mark in February.
Fiddes added, “The latest data indicate that domestic and foreign demand remains subdued amid weaker market conditions.”
Emphasis on structural reform
The world’s second largest economy will find it nerve-wracking to keep up to its growth rate at a faster clip as its economy gets bigger. Unless, it concentrates on the development of three sectors viz. productivity, capital, and labor, as it did for years in the past to sit at the world’s pinnacle. President Xi Jinping has lately preached the sermon on faster structural growth which puts less emphasis on growth instead. However, China’s sluggish growth story looks more cyclical rather than structural.
“There are indeed risks (to growth), but it’s not so scary. Efforts by a single or several countries are far from adequate,” said the President. “These reforms are gradually being put into effect project by project. Once the bow is drawn, the arrow cannot be put back in the quiver; we will resolutely deepen reform. Only by building extensive partnerships where all will think and work in unison can we expect to achieve positive results.”
Inflexible fiscal policies, producer-price deflation, and consumer-price inflation has restricted the arm of China’s government to spend funds, which has in turn taken a toll on its economic expansion.