Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
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China’s capacity to manage its economic transition has implications the world over The Chinese growth juggernaut is slowing down. The world’s second-largest economy has reported that its exports for December fell by 4.4%, the sharpest fall in two years amidst rising trade tensions with the United States and fears of a global economic slowdown. China’s trade surplus with the U.S. has increased to $323 billion, its highest level since 2016 and up 17% from a year ago. This is likely to put added pressure on Chinese exports to the U.S. Besides, China’s factory activity contracted to a two-year low by the end of December while car sales in 2018 dropped for the first time since 1990, pointing to faltering demand from Chinese consumers. There are increasing fears that the Chinese government may further drop its growth target to 6% this year, from 6.5% last year. Given its implications for global growth, markets across the world have naturally been worried about the fate of the Chinese economy. Its stock market, in particular, was the worst-performing among major economies last year. Apple, Jaguar Land Rover and other companies have warned of weak earnings due to a slowdown in their sales in China. Responding to fears of a serious slowdown in the economy, the People’s Bank of China on Wednesday injected cash worth $83 billion into the economy through open market operations in order to boost bank lending and overall economic growth. It is believed that the Chinese government may be prepping for a stimulus worth trillions of yuans to step up spending in the economy. China has been struggling to transition from its earlier growth model led by cheap exports and huge capital investments into a more domestic consumption-led economy. In particular, the government and the central bank have in recent years tried to wean the economy off cheap debt that fuelled its impressive growth run. The Chinese central bank fully opened the credit taps of the economy in the aftermath of the 2008 global financial crisis that threatened to derail growth. But even as it tries to steer the economy towards more consumption-led growth, the state has been wary of allowing economic sectors like real estate that were earlier boosted by the availability of cheap credit to go bust. A true restructuring of its export- and state-led economic model will not be possible until China allows the liquidation of uneconomical projects that were begun only because of the availability of ample amounts of cheap credit. This will be the first step towards building a more market-driven economy. But it is not clear whether China is willing to bite the bullet and stop feeding its economy with cheap credit. It may be tempted to go further and look at socialising the losses coming from defaults on business loans. None of this will be good for the long-term health of the Chinese or the global economy.
Source : https://www.thehindu.com/todays-paper/tp-opinion/shape-of-the-slowdown/article26032648.ece
