The IMF recently revised down its world economic growth forecast for this year to 3.1 percent, citing slower growth among emerging economies such as China, Russia and India as a reason. Of these, the degree of slowdown in China’s economic growth is exceptionally serious.
Chinese exports last month dropped 3.1 percent compared with the same period last year, while imports also fell by 2 percent. Growth in the consumer price index for the same month, at 2.7 percent, was the highest in four months. All these economic indicators are pointing to a contraction, suggesting that the economy is running out of steam.
The monthly growth in money supply also slowed in the first half of the year, with M2 growth decelerating from 16.1 percent in April to 14 percent last month, and M1 growth sliding from 11.9 percent to 9.1 percent in the same period.
Another starker indicator is the level of foreign exchange reserves which, at US$3.5 trillion, rose by only US$60 billion in the second quarter of this year — not even half the US$130 billion increase seen in the first quarter.
Major foreign investment agencies have adjusted their outlook for China, suggesting that Beijing would struggle to achieve 7 percent economic growth this year and that growth would further slow to 6 percent next year. Is the Chinese economy facing a hard landing?
China is now feeling the pressure of an economy in transition. Since the latter half of last year, the yuan’s appreciation, coupled with rising wages, meant increasing costs for labor-intensive industries. With orders falling, China’s small and medium-sized enterprises (SME) — in particular those in Wenzhou — have found themselves in trouble.
Official government policy orientation was diverted to capital and technology-intensive industries, while the government established a financing platform for SMEs to keep them financially solvent and help them upgrade, so that they can produce higher-quality, value-added products.
However, such financial assistance is just a band-aid for the problem and does not get to its roots. If the orders stop coming in, many SMEs will go under and the country will still be wracked by the labor pains of an economy in transition, further encumbered by black-market financing.
In the first half of the year Chinese industries — from construction to high-tech, including steel, cement, coal and glass to polysilicon, solar panels and wind turbines — were operating at a surplus. However, some products faced slow demand on global markets, while others were subjected to anti-dumping tariffs by the West. With supply exceeding demand, the chaos on the domestic market caused global prices to drop.
The world’s factory is now facing a host of problems, and while the high-tech and emerging industries are safe for the time being thanks to their being the focus of government policy, many companies are unable to find financing, and that is posing a major barrier to industrial transformation.
For more than two months now, the cash shortage in China has drawn wide concern. Those who advocate tightening money supply believe that there is too much liquidity in the market, that the demand for non-bank financial institutions is misleading capital flows, that the so-called high return financial products are gradually replacing traditional bank deposits and loans, and that all these are cause for concern. Even more worrying is the havoc caused to financing by illegal, dishonest, fraudulent financing practices.
These are issues that are in urgent need of a solution. To do that, the People’s Bank of China should reduce market liquidity on the one hand, while clearing up black-market financing on the other. The problem is that this will be most felt by banks that do not have sufficient working capital, and this could drive up overnight interest rates to 30 percent. This in turn will have an impact on companies’ working capital and cause the stock market to fall.
The effect of all this is rapidly being felt and becoming increasingly pervasive in this transitioning economy. At the same time, China’s financial woes are becoming ever more apparent in the global market.
There are many Taiwanese businesspeople in China who have been caught up in the difficulties of this economic transition. Whether they can adapt to the pace of change is crucial to their survival. The government should provide some form of technical and financial support to guide them through this difficult period.
China takes in about 34 percent of Taiwanese exports, and a slowdown in China will significantly affect Taiwan’s economy. Given this, Taiwan is not even assured of a 2 percent economic growth rate for this year.
China’s new leadership is currently faced with a complex, high-risk economic transition involving a large number of variables. Chinese Premier Li Keqiang (李克強) needs to strike the right balance in his economic policy moving forward: If he gets it right, China will continue to go from strength to strength, but one false move could spell disaster. He knows the importance of caution at this point.
Norman Yin is a professor of financial studies at National Chengchi University.
Translated by Paul Cooper
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations