NEWS//China's economy weakens
China's economy grew by a whopping 18.3% growth in the first quarter of 2021. On October 11, China reported a dismal 4.9% year-on-year growth in the third quarter.
Economic downturn
"The challenges of keeping the economy running smoothly have increased," said Fu Linghui, spokesperson for China's National Bureau of Statistics, at a press conference in Beijing. He said the country's recovery from the Covid-19 pandemic is "still unstable and uneven."
China was the only major economy to escape 2020 without falling into recession. But it has encountered a slew of challenges this year that are weighing heavily on growth.
Factors that have slowed China's economic growth include:
An energy crunch: The country is in the middle of an energy crunch. That has dented factory output. In turn, that had led to power cuts in some areas.
Shipping: Companies are unable to get their products to consumers. Smaller manufacturers are hurting for cash because of lost orders and production cuts.
Real estate: The real estate sector is also suffering from a government drive to curb excessive borrowing. With money tightening, investment in property is falling, developers worry about finding buyers, property firms are struggling to pay their debts, and new construction has stalled.
Global impact
A weakened Chinese economy will have a global impact. “Ripple effects to the rest of the world could be significant” according to Mo Ji of Fidelity International. “Even developed markets, including the U.S., would not be immune to a significant tightening in global financial conditions as a result of a negative China growth shock accompanied by financial stress.”
What's the solution?
Louis Kuijs, head of Asia economics at Oxford Economics, believes, "In response to the ugly growth numbers we expect in coming months, we think policymakers will take more steps to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of overall credit and real estate policies."
Leland Miller, chief executive of the China Beige Book, says the solution lies in transforming the Chinese economy into an economy that is driven by internal consumption. However, in Miller's estimation, China has not made enough progress to transition to a consumption-led economy. He maintains that structural changes that could boost consumption — such as strengthening the currency and increasing the social safety net — remained absent in China.
Sources: AP News, Fox Business News, CNBC, CNN