Is China slowing down? – The Hindu Business Line

Is China’s economy down?

Yes, China’s economy, after a brief Covid recovery, has been slowing down lately. Official data showed the economy growing just 0.4% year-on-year in the second quarter of 2022, after growing 4.9%, 4% and 4.8%, respectively, in the previous three quarters. . Of the three main drivers of GDP growth, gross capital formation – investment in assets – increased by only 0.3% and consumption fell by 0.8%, while exports increased by 1%. More recent data shows that while exports have improved, retail sales and manufacturing are not in great shape. China’s industrial production in July rose just 3.8% year-on-year, down from 3.9% the previous month and forecasts of 4.6%. July retail sales rose 2.7%, lower than the 3.1% recorded in June and the 5% expected. The IMF lowered its GDP growth forecast for China for 2022 to 3.3% and for 2023 to 4.6%.

While other economies appear to be recovering from Covid, why is China slowing down?

While most major economies, including China, have been affected by the Russian-Ukrainian conflict, in China government policies have also contributed to the slowdown. In 2020, the Chinese government implemented a three red lines policy that curbed new bank lending to large, heavily indebted property developers. These new rules have led to defaults, a growing inventory of incomplete homes, and homebuyers on strike over mortgage payments. The real estate sector would indirectly represent a fifth of the Chinese economy. As part of its zero-tolerance policy towards Covid, China has locked down key industrial cities, halting industrial growth. The housing market slump and strict testing and quarantine rules have damaged consumer confidence, so there has been no revenge shopping or travel like in other countries recovering from Covid. China is an export-driven economy, so supply chain disruptions from the Russian-Ukrainian war have added to its challenges. Chinese experts say the government’s zero-Covid policy and crackdown on overheated sectors such as real estate is an attempt to project current leaders’ preference for balanced growth, rather than unbalanced growth driven by monopolistic corporations. . The Chinese Communist Party is expected to decide the country’s future leadership at its upcoming 20th Congress.

How did the Chinese central bank react?

It cut its repo and prime rates to stimulate credit and demand.

How will China’s slowdown affect other nations and the global economy?

As the fastest growing major economy in recent years, China was expected to contribute significantly to the global economic recovery from the pandemic. It accounted for around a fifth of global trade before Covid. Therefore, the Chinese slowdown is expected to weigh on the global economic outlook. When the IMF projected China’s real GDP growth at 4.4% in April 2022, it expected the global economy to grow by 3.6%. But in July it lowered its global growth forecast to 3.2% for 2022. China is a key cog in the global supply chain, being a major supplier of critical chemical and industrial intermediates and consumer goods. – from electrical equipment to plastics and toys. — to the developed world. It is also a global manufacturing center for consumer goods and electronics. A Chinese slowdown can impact global trade in all of these products. On the other hand, China is also a major consumer of raw materials ranging from petroleum products to iron ore and copper. A slowdown in the Chinese economy can thus cool global inflation.

What impact will this have on India?

India depends on China for a large number of pharmaceutical and chemical intermediates, capital goods, automotive accessories and electronic components. A disruption in Chinese supplies can create shortages in these industries. However, lower Chinese consumption of industrial inputs and fuel may moderate global imported inflation, which has pushed India’s WPI and CPI inflation rates higher.

Published on

August 24, 2022

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