China's struggling economy likely to worsen

THE HANS INDIA |   Jan 22,2019 , 02:02 AM IST

China's struggling economy likely to worsen
China is facing what is being described as a debt iceberg with titanic credit risks as it expects to report that its economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising US tariffs. With stimulus measures expected to take some time to kick in, most analysts believe conditions in China are likely to get worse before they get better and see a further slowdown to 6.3 per cent this year. Real growth levels are already much weaker than official data suggest. 

Even if Beijing and Washington agree on a trade deal, which is a distant possibility, it would be no panacea for China's struggling economy unless Beijing can galvanise weak investment and consumer demand. Experts are of the view that investors should not expect the latest round of stimulus to produce similar results as during the 2008-09 global crisis, when Beijing's massive spending quickly boosted growth. 


What China really can do this year is at best is to prevent deflation, prevent a recession and a hard landing in the economy. It is said that lukewarm expansion in industrial output and weaker consumer spending is squeezing companies profit margins, discouraging fresh investment and raising the risk of higher job losses. Measuring economy's output is never easy but China's data comes with a bigger health warning than most. Rather than 6.6 per cent, independent economists say the GDP figure may actually be closer to 5 per cent or even lower. 

One leading Chinese former chief economists of China Agriculture Bank, Xiang Songzuo even claimed that 2018 growth may have been as low as 1.7 per cent. It may be hard to confirm the scale of the slowdown in China, but it is clear that growth has shifted down a gear. It is recently revealed that activity in factories and workshops stalled for the first time in two years in November. The month after, exports dropped 4.4 per cent compared to a year previously. Chinese households are clearly feeling the squeeze. Partly, if one were to say, China's problems are global. 

After being world's workshop over the last 40 years or so, China is losing out to the competitive edge of the likes of the Philippines and Vietnam, where labour is even cheaper. The government decided to switch focus away from exports to growing domestic demand. However, concerns then arose about the size of bad loans. Between them, the country's households, government and corporations have debts totalling almost three times the size of GDP. And then the trade war with the US is hurting Chinese producers. 

Donald Trump is in no hurry to end the war that he is winning. Of course, this downturn is no less the outcome of several internal key factors which once triggered the spectacular growth of the Chinese economy. China has now stopped receiving the benefits of the demographic dividend that it once reaped in augmenting its growth rate, primarily due to its now abandoned one-child policy. As a consequence of this policy, the ratio of the working age population to the total population has declined. Only a Trump can save it from further crumbling.



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