International

Sluggishness in Chinese Economy

Since the rise of Xi Jinping into power in 2008, the Chinese economy has been showing an outstanding performance in terms of economic growth as well as overall development. However, it is estimated that the Chinese economy is growing at an average rate of 6.5 % per annum based on the economy’s performance from the previous quarter growth in the past 3 months. While experts cite various reasons that led to the decline in economic growth, one cause which most of the analysts agree with is the fact that the trade war with United States is costing Chinese economy a lot more than what we expected. A growth rate of 6.5 % per annum is one of the lowest since the 2008 financial crisis. This news report indeed is sending pessimistic waves regarding the health of the Chinese economy and its financial market, as many investors across the world have started raising serious apprehensions about Beijing’s economic conditions.

One of the matters that concerns Chinese economy is the fall of Chinese currency Yuan for a period of time. Similarly, China’s share markets have also fallen by a significant percentage. At this point of time for a country like China, spontaneous and accelerated growth is really necessary considering the fact that China is too ambitious about playing a lead role in the global order and it also has expanding yet divergent interests across the world in terms of economic as well as political influence. Considering the fact that China is spending too much to build the One Belt One Road initiative by connecting more than 60 nations, a fall in the Chinese GDP growth rate is something that the nation cannot afford.

One of the reasons why the Chinese economy is declining is due to the fact that China is facing stiff opposition from across the world for its trade practices. The US trade war initiated against China was largely based on the fact that China deployed inefficient and illegitimate intellectual property rights in the regime. Many world leaders including Donald Trump himself felt that China was not respecting the trade balance that it was supposed to maintain with other countries. Six months ago when Beijing announced the Made in China 2025 initiative, the world believed that China could turn the table and project itself as a global leader in terms of political and economic might However six months down the line, China is struggling to maintain an economic growth rate at par with the growth rates achieved by many other fellow countries including the BRICS nations.

A large share of this decline in the GDP growth is contributed to the trade war declared by US. Trump has imposed sizable amount of trade restrictions and tariffs over Chinese imports when he assumed office. Trump had promised that he would control the Chinese invasion into its domestic market by putting tariffs. It seems like Trump is very determined. He imposed $50 billion dollar worth of tariffs and restrictions over Chinese imports in June this was followed by further $200 billion restrictions which together constituted a sluggishness in the Chinese export industry. This, along with China’s massive investment programs in many countries that have signed the OBOR initiative, is creating a drain in the wealth possessed by the Asian superpower.

Some of the parties who will gain from a suffering Chinese economy would be definitely India and United States. From India’s perspective, a decline in Chinese economy will open up space for the Indian manufacturers to fill the vacuum left by the Chinese exports and showcase the capabilities of the Indian manufacturing sector, given that the Indian manufacturing sector is able to produce goods which are highly competitive with the Chinese goods in terms of price as well as quality.

Another party which might gain from a suffering Chinese economy would be definitely the United States. For the past decade there was a competition between United States and China to retain the economic superpower in the world. While the position was held long by United States, China has been questioning this legitimacy and superiority of US economy since the 2008 subprime crisis. With the slowing down and stagnation in the Chinese economy, the US economy may get a lot of potential opportunities. This is evident from the fact that the US economy grew at a rate of 4.2 % in the previous quarter when it initiated a trade war against China. At that time, many economists predicted that this would hurt the economic interest of US economy. However it seems like US economy is in fact gaining from bleeding the Chinese economy, at least for the time being.

One thing is evident from the current scenario that if this trade war escalates, it will hurt the Chinese economy and its interests. It can also hamper the growth dreams of several other developing countries and this as an aggregate effect, can lead to another economic disaster in the coming years.

Picture Credits: www.thenational.ae



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