Is China’s economic slump just the beginning?

Is China’s economic slump just the beginning

China, the world’s second-largest economy, grew by 6.9 percent in 2015 marking the weakest growth rate percent in 25 years. The growth for the year end of 2014 was 7.3 percent.The quarterly growth for the last quarter was a record low of 6.8 percent, undershooting market expectation and signaling a weakening momentum in the growth of the economy.This is also the weakest quarterly performance since the economic recession in 2009, six years ago. This pronounced deceleration from Beijing affirms that a multiyear slowdown is biting China’s economy harder and shows little sign of abating.

China’s slumping growth is a primary concern for investors all around the world, since China is viewed as a driver of the global economy.Growth has been falling steadily over the past five years as the communist party tries to reshape the worn-out model that is based on investment and trade towards a self-sustained growth that is mainly driven by domestic consumption and services.This transition is proving to be a bumpy ride for China, and there is mounting pressure on the government.

Li Keqiang, the Chinese premier, said that the weaker growth would be accepted as long as sufficient new jobs were created. However, the unexpectedly sharp decline over the past two years has prompted fears of a dangerous spike in jobs. Some analysts even say that Beijing has inflated the figures and that the growth level is lower than the 6.9 percent reported. Any growth below 6.8 percent would likely fuel calls for further economic stimulus.

The head of the National Statistics Bureau in China, Wang Baoan, insisted that China’s economic data was valid and reliable and that the methodology of obtaining it was in line with the global standards. He added that although a slump, the economic growth figure of 2015 met the government’s target for medium to high growth. He saw it a rate hard-earned, considering that global trades were shaky and markets were volatile.

An economic policy meeting was held by Chinese senior officials on Monday, where President Xi Jinping urged officials to stabilize the short-term growth.

Yang Zhao, Nomura Group economist, said that the real economy had not picked up very well.

“We’re going to have a choppier sea ahead of us,” he added.

Economists and even Chinese officials are predicting a tough year ahead, considering the country’s growing debt and excessive housing and factory capacity. The government has traditionally used infrastructure spending, easy credit, and ramped-up exports to revive growth, but these tools are appearing increasingly ineffective in the face of the new, tumultuous economic slump. With stock markets tumbling into the new year, erasing gains from an unsteady recovery after a summertime crash, it is easy to see that China — and eventually the global economy — is up for a rough ride this year.

Beijing responded to ebbing growth over the two years by slashing interest rates six times since November of 2014. It also launched strategies to help exporters and other industries. However, economists argue that China still relies on state-led construction spending on top of other investments.

As the yuan deteriorates, the Chinese are moving money out of the country, which constitutes a loss of investments.This puts the government at a crossroads; if it decides to slash the interest rates to boost the economy, it means more capital flees.And if the government raises the rates, more debt-plagued companies risk going bankrupt, leading to joblessness. It will be interesting to see how the government will maneuver around this problem to deliver the promised 7 percent economic growth it has set as a target for this year.

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