We Can’t Count On China To Offset Slower Growth In The Advanced Economies

“In the past, China has helped the world out of such weak spots, most notably during the global financial crisis. But this time, its economy is showing pronounced weakness. Car sales have plunged in China since last summer. Smartphone sales are falling. The real estate market has stagnated, with deeply indebted developers forced to pay steep interest rates to roll over their debts. And trade frictions with the West, coupled with tough policies from Beijing toward foreign investors, have made Chinese and foreign companies alike warier of further investment in China… The World Bank aptly titled its review of this year’s outlook “Darkening Prospects.”  (Keith Bradsher, China’s Slowdown Looms Just as the World Looks for Growth, NYT, Jan. 20, 2019)

The latest information emanating about China suggests that the world’s second largest economy is encountering significant economic headwinds. China’s economy is likely at a turning point.

China’s economy is slowing at a time that there are similar, slower growth trends surfacing in other countries. Bear in mind that up to recently China has accounted for about one-third of global GDP growth.

In January China reported that its economy grew 6.4% in the fourth quarter of 2018 compared with the same quarter in 2017. In all of 2018, China’s economy grew 6.6%, the slowest reported growth rate since 1990.  

While the recent 6.4% growth rate still seems quite robust, other economic indicators do not support a vigorous picture of the economy. Moreover, many economists also believe that China’s economic growth rate statistics are unreliable.

One of the worries surrounding China’s economic outlook is that the government’s structural transition process could get out of hand, especially if the tariff war with the US escalates.    

China's authorities have been trying to steer the country to a slower, more self-sustaining growth rate emphasizing consumer spending instead of trade and investment. But the recent GDP growth slowdown was sharper than expected and prompted the government to ease back on lending controls and step up government spending in order to avoid politically dangerous job losses.

A glut of unwanted apartments is part of the reason for the slowdown in the world’s second-largest economy. According to estimates by Gan Li, a professor at Southwestern University of Finance and Economics in Chengdu, more than one in five apartments in China’s cities, roughly 65 million, are unoccupied.

The stock market also lost around a quarter of its value in 2018. Declining business confidence, rising labour costs and the trade war with the United States are also hurting the job market. While China does not have reliable data on its job market, surveys from on line postings suggest that labour demand has weakened significantly, particularly in the import and export industries.

The government also worries about the heavy consumer and corporate reliance on borrowing, since borrowing has been quite easy since the Great Financial Meltdown.

Consumer debt in China (home mortgages, car loans and credit card debt) have recently grown faster than China’s economy.

Nonetheless, household debt in China still is significantly lower than comparable situations in four other large industrial countries (the US, Britain, Japan and Germany).

China’s Annual Growth In Real GDP