China's Sagging Growth Problems

Chinese economy has grown at a blistering pace from 1991. In the year 2014, the Chinese GDP grew only at a rate of 7.4% which is only a little less than the official target rate of 7.5%. This rate would be the envy of many a country in the world, but for China, it is the lowest rate since 1991.

There is also a doubt over the figures released by the Chinese National Bureau of Statistics. Independent research groups have pegged the figure more realistically at 5.7%. This figure is arrived at by monitoring electricity output, passenger travel, cargo volume, freight shipment and construction. This shows that the Chinese economy is slowing down. The last few months have shown improved data, but this does not in any way negate the long term down trend in the Chinese economy.

This comes at a time when in the world over there is uncertainty in economy and more so in the Eurozone. Given the fact that it is economic growth that ensures political stability, the slowdown can have serious implications for the Asian region as well as internationally.

For more than two decades, political stability was maintained because of economic growth. While the people raised their standard of living and earned handsome salaries, the political power was intact; political parties were able to keep a monopoly on power. Reducing economic power may make Chinese leaders become more nationalistic and take aggressive positions in the South China Sea as well. One should not forget that the massive protests in China in 1989 were closely linked to the worst economic crisis in China. Since that time China has had a system whereby it gave economic progress to the citizens and retained monopoly of political power. This worked well in times of good economic growth, but it is likely that the system may be under strain in a slowdown. And when a country’s people lose faith in the economic growth or revival of the country, they turn against the government, as can be seen in uprisings in the Middle East.

The new government of Xi Jinping has initiated a number of measures to bring the economy into shape. It has used macroeconomic tools to bolster growth. The People’s Bank of China recently reduced interest rates. It also reduced the reserve requirement ration, which released almost a hundred billion dollars for lending. The government also put a curb on lavish expenditure and anti-corruption measures were tightened. These anti-corruption measures are now beginning to have a negative impact with a visible reduction in spending in high end real estate and products. Nevertheless these measures cannot ensure that a high economic growth will be maintained. With a global lowering in rates, it is expected that lower growth rates will become the norm in China as well. The government must lower the expectations of the people and increase political stature by legitimate means.

China is the country with a maximum amount of international trade and any slowdown in China will have an impact globally. At a time of serious global economic uncertainty, there may be a real political global impact. The world must brace itself for all these

Atreyee Roy (have 690 posts in total)

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