China’s slowing economy | Explained News,The Indian Express

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Last year, China’s GDP growth fell below global average for the first time in decades. The yuan has been losing ground to the dollar since the beginning of 2023. Key indicators suggest a faltering economy

China economy, China economic growth, Explained Economics, Li Qiang, Beijing, world news, business news, Explained, Indian Express Explained, Current AffairsA new Chinese law that came into effect at the beginning of this month provides a legal framework for policymakers in Beijing to respond to export bans imposed by the US. Reuters/File

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United States Treasury Secretary Janet Yellen criticised China’s “unfair economic practices” on the first day of her ongoing visit to Beijing on Friday, saying she was “particularly troubled by punitive actions that have been taken against US firms in recent months”.

However, she said that the US “does not want a wholesale separation of our economies”, and seeks to “diversify and not decouple”. In May, G7 had taken a nuanced pledge to “de-risk” without decoupling from China — drawing a warning from Chinese Premier Li Qiang last month that Western attempts to de-risk could lead to fragmentation of global supply chains.

A new Chinese law that came into effect at the beginning of this month provides a legal framework for policymakers in Beijing to respond to export bans imposed by the US.

In October 2022, the Biden Administration announced steps to block the access of Chinese companies to advanced microchips and related equipment built in the US. Earlier this week, as its own law took effect, Beijing hit back by banning exports of gallium and germanium, two minerals that are critical to the global chipmaking industry.

The escalation of trade hostilities coincides with increasing signs of trouble in the Chinese economy. While the US has its own problems — it has been trying to contain inflation even as the robustness of its economic growth continues to surprise policymakers — China’s economy has been slowing.

What key metrics show

In 2022, China’s GDP growth fell below the global average for the first time in several decades. The yuan has been losing ground to the dollar since the beginning of 2023. Over the past three weeks, stock prices of Chinese companies have lost value in several markets.

In June, the People’s Bank of China cut interest rates twice, even as economists and analysts lowered China’s growth forecast. JP Morgan, UBS, StanChart, and Nomura trimmed China’s growth outlook from being closer to 6% to being closer to 5%.

Numbers from China’s National Bureau of Statistics show the following:

  • Youth unemployment in urban areas: This metric, which looks at unemployment among those aged 16-24 has been 3-4 times the overall unemployment level, and rising sharply. In May, it was at almost 21% — meaning, 1 in 5 Chinese youths is looking for work and failing to get it.
  • Growth in industrial output: At the beginning of the year, there was hope that China was starting to pick up growth momentum. This was crucial for both global growth and growth in Asian countries. But the momentum seems to have faltered in May.
  • Growth rate of investment in fixed assets: More investments in fixed assets suggest that companies are hopeful of future growth. A faltering growth rate here suggests weak underlying demand, and that businesses are increasingly holding back. At 4%, the May growth rate here was the lowest in a year.
  • Growth rate of retail sales by consumers: As world trade falters, Chinese policymakers have been trying to transform their economy into one that runs more and more on domestic consumers. The data here suggest that consumer growth rate faltered in May.
  • Growth rate of exports: Exports growth has been the traditional engine of growth for China, but the data reveal exports have contracted on several occasions. The recovery in March and April could not be sustained in May.
  • Growth rate of imports: Most growing economies, with robust domestic demand, tend to import more, not less. Here, as the data show, imports have contracted more often than not, suggesting weak domestic demand.
  • Purchasing Managers’ Index (PMI) in the manufacturing sector: The PMI trend is used for international comparisons while monitoring macroeconomic developments. It is often seen as a strong predictor, and can warn of forthcoming slowdowns. PMI above 50% suggests the manufacturing economy is expanding; less than 50% reflects shrinking. It has now been in negative territory for two consecutive months.

What outlook suggests

Chinese authorities have so far only tinkered with interest rates, but most analysts believe the country’s economy needs a fiscal stimulus. In other words, the government will have to either spend more or cut taxes to incentivise economic activity.

According to Xinhua News Agency, Premier Li held a symposium on the economic situation on Thursday, where he reportedly said that “targeted and coordinated policy measures should be introduced and implemented in a timely manner to stabilize growth, ensure employment, and guard against risks”.

© The Indian Express (P) Ltd

First published on: 08-07-2023 at 07:07 IST


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