Shape of the slowdown (China's economic transition and troubles for the world)

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 Shape of the slowdown (China's economic transition and troubles for the world)

Read more on - Polity | Economy | Schemes | S&T | Environment


    • China slowing down : Amid rising trade war tensions with America, China has announced export figures that indicate a clear slowing down of the economy, raising fears of a global economic slowdown.
    • Highest ever trade surplus : China's trade surplus for 2018 with US was $323 billion, 17% higher than in 2017. Naturally, Trump's reaction is expected now, and exports may contract.
    • Growth target : China may reduce its GDP growth target to 6% from 6.5%. Such figures scare markets everywhere. Large firms like Apple, JLR etc. have warned of lower earnings due to China sales slowdown.
    • Injecting cash : The People's Bank of China (central bank) has injected $38 billion by OMO (open market operations) to boost bank lending. Overall, the government may bring a strong stimulus (trillions of yuans) to up spending in economy.
    • China in a transition right now : Earlier model of growth was cheap exports and huge capital investments. Fresh model being attempted is domestic consumption-led economy. The GoC and PBC have tried to slowly reduce the cheap debt addiction of economy (that fuelled its massive growth).
    • The 2008 crisis spurred opening of taps : To save an economic collapse, the PBC opened the liquidity tap fully post 2008. Now the State wants to move to consumption, but wants to not let real-estate sector go bust (that survived on massive cheap credit earlier). [Why not? Social instability]
    • China has to bite the bullet : Ultimately, China has to let the uneconomical projects go bust, that were started only to consume massive cheap credit that was available! Can it do so? It may actually do the reverse - socialising losses coming from business loan defaults. 
    • Summary : China is facing a strong challenge in maintaining its economic growth, just when a trade war has slowed down its exports, and the internal transformation isn't going too good.
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                                                                                                                                PT's IAS Academy: Shape of the slowdown (China's economic transition and troubles for the world)
                                                                                                                                Shape of the slowdown (China's economic transition and troubles for the world)
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