Has China’s economy hit a roadblock? Not necessarily, even though there is an official acknowledgement of its slowing growth rate.
China’s growth rate slowed to 6.4 percent in the final quarter of last year, which is fractionally less than 6.6 percent for the full year.
While it is by no means disastrous, it is said to be the slowest economic growth rate for several years.
This is worrisome for two reasons.
First: any slowdown is likely to create problems for a country of China’s size, where growth momentum is necessary to create additional employment for social stability and political legitimacy. Chinese National Bureau of Statistic Director Ning Jizhe (寧吉喆) reportedly said that, among other things, the bigger challenge was finding jobs for millions of unemployed working-age Chinese.
Second, China’s recourse to economic stimulus by way of injecting more money into the system has its limits and could be counter-productive.
Indeed, China was trying to deleverage the financial risk from huge debts racked up by local governments and instrumentalities.
Any large-scale stimulus — and it has to be large to make any discernible impact — is going to make the debt problem even worse.
The scale of the debt problem (mostly internal) can be determined from the fact that China’s total debt is now estimated to be about 300 percent of its GDP, which should be ringing alarm bells.
So much money is circulating in the system that it is bound to create severe distortions, sooner or later.
One area where economic stimulus is creating distortions is the property sector, where there is a glut of new apartments waiting to be sold.
More than one in five apartments in Chinese cities — about 65 million — sit empty, according to an estimate by Gan Li (甘犁), a professor at Southwestern University of Finance and Economics in Chengdu.
“We are already in a difficult economic situation. The decline will only get worse,” the New York Times quoted Gan as saying in an article on Dec. 30 last year.
The slump in the property market has undercut the property values of earlier buyers, who have reportedly taken to the streets to protest in some places.
The trade dispute between China and the US is an important factor creating problems for China’s economy.
It has consequences for the US too, for instance, from China’s reduced imports of agricultural products, such as soybeans, thus affecting US President Donald Trump’s constituency.
The recent official-level talks in Beijing between the two countries seem to have gone nowhere, and unless there is a breakthrough in the trade impasse before March 1, the US is committed to impose further tariffs on imports from China, with Beijing likely to retaliate.
The Chinese government appears willing to substantially increase its imports from the US to rectify the trade imbalance between the two countries, where China has been running a large trade surplus.
The US believes that there are structural problems on the Chinese side and unless these are fixed, the trade relationship will always be skewed to the US’ disadvantage.
Washington would like China to sign up to stringent standards on intellectual property, foreign investment and state subsidies, and that is going to be a tough call.
Indeed, it is becoming part of a larger strategic contest with China. The US believes that China is calculatedly seeking to supplant the US as the top global player and Washington is determined to maintain its supremacy.
It is seen, among other things, in China’ technology leap, with push back from the “Five Eyes” countries — the US, the UK, Canada, Australia and New Zealand — against the Chinese technology giant Huawei Technologies Co seeking to penetrate the new generation mobile sector.
The arrest in Canada of Huawei executive Meng Wanzhou (孟晚舟), the daughter of the company’s founder, on a US extradition request over the company’s alleged violation of sanctions on Iran, and the subsequent arrest by China of two Canadian citizens on spy charges, seems part of the larger strategic contest between the two countries.
However, the trade dispute between China and the US, unless resolved, has serious implications for global economy.
It is surely affecting China, but considering its adverse impact on global economy, it is high time that a resolution is arrived at, sooner rather than later.
Sushil Seth is a commentator based in Australia.
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