Mon. Dec 9th, 2019

The economy of China is slowing regional anxieties are growing

The economy of China is slowing down. After decades of double-digit growth, the country’s GDP is now rising at around 6 percent— the fastest of any major economy in three decades, but still the lowest level in China. Several factors contribute to the deceleration— some structural, some political. Yet China’s problems are not alone, regardless of their origin. Their influence throughout the world is already being felt.

As an economy grows, the rate of growth is slowing. Once-abundant resources (including labor prime) become scarcer, comparative advantages erode, and rent-seekers set footprints. It’s no exception to China. It was inevitable that the first two decades of reform’s explosive growth would slow as the red-hot coastal provinces of the country grew and input prices soared. The only problem was how the country would react to the recession and whether it was possible for the government to temper expectations and maintain social order. In recent months, this answer has assumed greater importance.

The latest figures show that China’s growth has slowed to 6%, the lowest level in almost 30 years. That’s within the limits of official estimates, but economic uncertainty is clear. Compared to the previous October, industrial output rose 4.7 percentage points, but that is 0.7 percentage points below expectations and 1.1 percentage points below results in September. For the sixth consecutive month, factory production shrank, new export orders decreased for the 17th consecutive month, and the volume of industrial exports produced shrank 3.8 percent, the third straight month of decline.

The downturn in the domestic market is particularly worrying for Chinese decision-makers. Financing for companies and households hit 618.9 billion yuan ($88.2 billion) in October, the lowest level in over three years. Services sector growth continues to slow, and retail sales have risen by 7.2 percent, the same rate as of April’s 16-year low hit. Analysts were especially disturbed by the slumping of domestic quality auto sales, typically considered a bellwether. Retail car sales, marked by double-digit growth, fell from the previous year by 6.6 percent in September.