What’s slowing down China’s growth?

What’s slowing down China’s growth?

21/01/19

China’s growth in 2018 slumped to its lowest level in 28 years, sparking fresh concerns about the health of the world’s second largest economy.

According to new data released on Monday by the National Bureau of Statistics, GDP in Q4 of 2018 grew at the slowest pace since the global financial crisis, easing to 6.4 percent on-year. That pulled overall Chinese 2018 growth down to 6.6 per cent – the slowest annual pace since 1990, Reuters reports. Although broadly in line with forecasts, the slowdown highlights increasing concerns about an economy which drives a third of global growth.

The cooling growth is related to China’s transition away from an export-led economy towards domestic consumption-led growth – what Beijing would refer to as a focus on quality rather than quantity and an attempt to create a modern, sustainable economy. This transition makes some level of economic slowdown inevitable. However, it is the speed of the slowdown which is raising concerns. Out of the three key drivers of the Chinese economy – infrastructure, property and exports – infrastructure is rebounding but property and exports are slowing down. This can be partly explained by the US-China trade war, which is spooking consumers and affecting investor confidence. It is also related to domestic financial pressures as China tries to manage the reliance on credit and targeted government stimuli for economic growth.

Asian markets remained steady after the news, however any further large-scale slow-down in Chinese growth is likely to impact the rest of Asia. Commodity-exporting emerging markets and developing countries will be affected by reduced Chinese demand. However, some Asian countries will continue to benefit from inheriting China’s export manufacturing business. Any resulting financial market volatility could also hurt the US and other developing nations throughout the EU.

Chinese vice premier Liu He is scheduled to visit the US at the end of the month for the next round of trade talks with Washington. If progress is made, it may give Chinese consumers the confidence to buy more, giving the economy a boost.

China has now set an annual growth target range of between 6 and 6.5 per cent for this year, the South China Morning Post reports.

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