C3S weekly column W003/2015
The Dragon does tire: Slowdown of China’s economic growth
The World Bank in its latest report titled “Global Economic Prospects” has cut the global growth forecasts for the next two years. The report projects the world economy to expand by 3% in 2015, while there is a marginal improvement to 3.3% the next year. It must be highlighted that these forecasts do not paint a bleak picture of economic stagnation across the world; the report does paint rosy economic pictures for the United States, the Euro zone and India. However, the biggest challenge to global economic revival emerges from China, an economy whose continuous and runaway growth has been interrupted in the year 2014. Like the World Bank, the International Monetary Fund has also downgraded its forecast for the global economy for the next two years and attributed China’s economic slowdown as a major cause of concern. These global economic growth predictions has to be viewed in their notional rather than national perspective, while the United States growth forecast of 2.6% on 2014 is celebrated China’s economic growth of 7.4% has created anxieties all around the globe. China as the second largest global economy has been the bulwark against universal economic downturn and thus stagnation of Chinese economic miracle has serious implications for the global economy. However, unlike the rest of the world the Chinese leadership do not seem to be overly perturbed with slowing economic growth as they are aim to prevent a hard landing (serious economic downturn) after witnessing exceptional levels of growth in the last 25 years.
China’s economic growth is one of the most unprecedented in its pace and scope. China experienced an eight-fold increase in living standards in just 30 years, while it took the United States 122 years and Japan needed around 80 years for the same. The fact that Chinese economic growth story includes more than a billion people and that China has lifted 500 million people out of poverty; makes this achievement truly extraordinary. It has been argued that the Chinese Communist Party has managed to continue its rule over the Chinese people by providing rapid economic development at the cost of real political and social freedom. Now it may seem quite paradoxical that the same Chinese leadership seems thankful to the fact that finally their nation is getting off the runaway tiger of booming economic growth. Chinese President Xi Jinping has called the slower growth as China’s “new normal,” and this is seen as an opportunity for China to usher in structural reforms in its domestic economy. Some experts claim that China’s slowdown is engineered by its leadership to move the economic focus away from growth solely based on investment in factories and real estate to Chinese domestic consumption.
Chinese government claims to have shifted its focus from the quantum of growth to the higher quality of economic growth, while it may just be a public relation gimmick to soften the impact of economic slowdown on the Chinese people. It is imperative to highlight that during the 2008-2009, global financial crisis (GFC), Chinese government made massive investment in major capital projects of infrastructure building to keep the Chinese economy afloat during the global economic meltdown. This massive investment led economic stimulus has run its course and has created overcapacity in building and manufacturing industry. It is worthwhile to remember that the Chinese government does not seem inclined to repeat the same course of action this time around. It is claimed that the Chinese leadership wish to invigorate the private industry and move away from the low-end manufacturing and investment toward higher-end manufacturing, innovation, consumption and services. China has been trying to make the economic shift from investment based growth model to consumption based growth model for well over a decade. However this transformation is neither easy nor rapid and it seems China is in the midst of such an economic transformation. Therefore, the Chinese government must be extremely careful of this economic makeover since the government may curtail major investments but consumption and services fail to achieve the corresponding increase.
The IMF predicts further slowdown of Chinese economic growth in the next two years: 6.8% in 2015 and 6.3% in 2016, a dramatic deceleration from double-digit rates in previous years. Chinese government resolve to tolerate economic downturn will be severely tested once the slowdown, devalues the property investments and triggers more than acceptable levels of unemployment. The deepening of economic downturn has the potential to bring about serious social and political tensions within China but at the same time the Chinese government seems to have vast reserves of financial-political-security tools to contain any economic-political-social fallout.
( Ravi Dutt Bajpai is currently pursuing a Masters in International Relations at Deakin University, Melbourne. He is associated with the Institute for Post Colonial Studies in Melbourne and is a regular social and political commentator with the Hindi daily, Prabhat Khabar, published from Bihar and Jharkhand. With expertise on China, India and Australia in world/Asian politics, he is a regular commentator on Special Broadcasting Service (SBS) in Hindi in Australia. Email id: firstname.lastname@example.org. )