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People's Republic of China - Economy

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  • China's GDP fell by 6.8 percent year-on-year in the first quarter of 2020 amid the COVID-19 pandemic, the National Bureau of Statistics said on 17 April 2020. "According to the preliminary estimates, the gross domestic product (GDP) of China was 20,650.4 billion yuan [about $3 trillion] in the first quarter of 2020, a year-on-year decrease of 6.8 percent at comparable prices", the bureau said in a report. This was the first recorded GDP decrease in China since 1992, when Beijing started to publish official statistics. The monthly report by OPEC projected a severe recession in 2020 due to the COVID-19 pandemic, with China being no exception. As China has managed to contain the spread of the coronavirus, it may experience GDP growth of 1.5 percent, the cartel said, which nevertheless is a huge decline from a growth rate of 6.1 percent in 2019.

    Preliminary data from China's National Bureau of Statistics released on 21 January 2019 showed that the growth rate of the world's second-largest economy expanded by 6.6-percent last year the lowest level since 1990. China's fourth quarter gross domestic product grew 6.4-percent, the slowest pace since the 2008 global financial crisis. Although the Chinese economy faced a downward pressure the statistics agency says the growth rate remained steady overall pointing to a near 6-percent on-year increase in industrial output, while retail sales soared by more than eight-percent in December 2018 compared to a year earlier.

    In a speech to opening session of the annual National People's Congress at Beijing's Great Hall of the People 05 March 2017, Premier Li Keqiang set the growth target for the world's second-largest economy at "around 6.5 percent or higher, if possible." That's down from 6.7 percent expansion last year but, if achieved, would be among the strongest globally. He promised more steps to cut surplus steel production that is straining trade relations with Washington and Europe. Li promised to eliminate 50 million metric tons of steel production capacity.

    Research firm Sanford Bernstein, which keeps tabs on sales of movie tickets, cars, mobile phones and Alibaba online transactions in China, has argued that the worlds second-largest economy is actually weaker than it seems. The firm's estimate of Chinas third-quarter 2015 growth was 4.1 percent.

    Local officials and the central government both have vested interests in exaggerating their economic performance. Capital Economics, a London-based research group which monitors the Chinese economy, looks at five factors -- electricity output, freight shipments, construction, passenger travel, and cargo volume. They dispute China's claims to narrowly missing its growth target of 7.5 percent. According to these five indicators, China's economic performance closely tracked with official figures until mid-2013. After that, Chinese statistics diverged from the reality of these indisputable numbers. According to these calculations, recent annual growth is closer to 5.7 percent, far below the 6.5 percent which some say is the critical mass for political stability.

    The governments deleveraging campaign which aims to avert a potentially regime-threatening financial crisis has led to a sharp reduction in investment growth as companies access to credit is cut. In June 2018, China's stock market sank to its lowest level since January 2016. US$2 trillion has been wiped off share values in the first six months of 2018, making Chinas stock market the worlds second worst performer after Argentina. This is not yet on the level of the 2015 market meltdown when Chinas stock market lost half its value, US$5 trillion. An important difference between todays bear market and the 2015 version, that this time the selloff in shares seems to be driven by big institutions rather than Chinas army of small stock market investors.

    The upsurge in the class struggle, despite workers conspicuously avoiding political slogans, is another major problem for Xis regime. While Chinas economy is now slowing, many groups of workers have reached breaking point as their wages and working conditions have worsened over recent years.

    Due to the governments quasi-monopoly control over outbound investment, there is also evidence of coordinated outbound investment. In its 10th Five-Year Plan (2001-05), the government introduced the go global directive, which encouraged Chinese companies and funds to invest overseas to acquire resources, technology, and know-how. The directive gained further momentum during the global financial crisis, which provided a rare opportunity to buy undervalued assets in foreign markets. Since 2008, Chinas outbound investment has grown steadily and has begun to outpace inbound investment.

    China's economy grew at its slowest pace in six years in the first quarter of 2015, according to data released April 15, 2015, raising fresh concerns over the condition of the world's second largest economy. Growth declined to 7 percent in the first quarter of 2015, down from 7.3 percent in the previous quarter. That is the slowest quarterly growth rate since early 2009 during the aftermath of the global financial crisis. China's ruling Communist Party set a modest target of 7 percent growth for 2015.

    The IMF April 2015 WORLD ECONOMIC OUTLOOK pegged China's growth at 6.8 percent in 2015 and 6.3 percent the following year, a far cry from its ten-year peak of 14% in 2007. These projections had been revised downward by and percentage point, respectively, as previous excesses in real estate, credit, and investment continued to unwind. The Chinese authorities were expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth, and hence the IMF forecast assumed less of a policy response to the underlying moderation. Ongoing implementation of structural reforms and lower oil and commodity prices were expected to expand consumer-oriented activities, partly buffering the slowdown.

    Many analysts expected economic growth in the fourth quarter of 2014 to slow only slightly from 7.3 percent in the third quarter. The lower figures are a sign that what Beijing calls "the new normal" is here to stay. It meant full-year growth would undershoot the government's 7.5-percent target and mark the weakest expansion in 24 years. Economists advising the government recommended that China lower its growth target to around 7 percent in 2015. That is the slowest pace of growth China has seen since 1990, when the countrys economy was struggling under the weight of sanctions after the brutal crackdown on pro-democracy protesters in Tiananmen Square.

    In late November 2014, the central bank unexpectedly cut interest rates for the first time in more than two years. It has also injected more funds into the banking system and relaxed restrictions to persuade risk-averse banks to lend more. More infrastructure projects were also approved.

    By some measures 2014 was the year that China overtook the United States as the worlds biggest economy. It happened sooner than many expected. According to figures released by the International Monetary Fund, China's total output of goods and services pushed past the United States' total for the first time in 2014. China surpassed Japan to become the worlds second biggest economy in 2010.

    Chinas dramatic economic slowdown is explained in large part by the decline in global competitiveness of its manufactured goods as productions costs have increased for Chinas facilities. These recent trade figures might be evidence of the irrelevance of the export-based growth model for China, underlining an urge for structural reform in the Communist nation.

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    Page last modified: 28-10-2020 19:03:12 ZULU