Decoded: The Chinese economic slowdown
Decoded: The Chinese economic slowdown
China said on Monday that its economic growth slowed to a slowest in 28 years in 2018. Growing signs of economic weakness in the country – which is almost one-third of global development in the last decade – are worrisome about risks to the world economy. ET takes a deeper look.
1. Major numbers / features defining the recession of China
China’s December exports fell unexpectedly to 4.4% a year ago, the demand in most major markets was weak. After July 2016, a shock was seen with a decline of 7.6% in imports.
Manufacturing activity was contracted for the first time in 19 months. New orders fell and retail sales declined. Despite some exemption, firms have reported soft demand. For some firms, the capacity utilization is 40-50%. The slowest debt outstanding in a decade has been increasing. Most of the privately owned enterprises, with limited access to historical credits, did not receive government support. According to the Moody’s Investors Service, the companies which are state-backed by default in December 2018, in four years. Other concepts: the size of China’s debt pile and the risk of bad loans. Among them, almost three times the loan size of the country’s household, government and corporation’s gross domestic product.
The weak expansion in industrial production and the weak consumer spending are reducing profit margins of companies, discouraging new investments and increasing the risk of high job losses.
Along with the choice of Apple and Jaguar Land Rover, with the slowing of sales of goods from iPhones to automobiles, soft demand in China is being felt worldwide.
Guangdong – Some factories of China’s export center have already shut down normal before the long moon year holiday in the form of tariff war with the orders of the United States. Others are suspending production lines and are cutting workers’ hours.
3. Why does China’s lethargy matter?
The Chinese industry is closely integrated into international supply chains.
At the turn of the century, China took about 7% of global economic activity. This figure is likely to be 19% this year.
Its economy is so big that it determines the global price of a huge range of products.Half of all the steel, copper, coal and cement in the world goes to China. So if this is not a purchase then prices are likely to fall.
4. What has China done so far?
Fast-track construction projects
Reduce some import duties to increase demand.
In order to liberalise more funds, especially for the more vulnerable small firms, the Chinese central bank has cut the amount, which banks need to set in the form of reserves five times as compared to the previous year. , And guided lending costs are low.
5. Will there be another big excitement?
Chinese policymakers have pledged to give greater support to reduce risk of job loss on a large scale, but they have denied stimuli such as a “flood” in 2008/09. Therefore, analysts expect . In the coming quarters, further reductions in the reserve ratio. Criteria There is no possibility of an immediate reduction in interest rates as policymakers will wait to see if the earlier steps start to stabilize the conditions. The fear is that the more powerful easing can put pressure on the yuan and increase the higher level of credit, in which the money can go into less efficient or speculative investment. More fiscal stimulus measures can be announced during the annual parliamentary meeting in March, which includes large tax deductions and higher expenditure on infrastructure projects.
6. What does the Chinese recession mean for India?
China’s largest share of India’s imports is more than 16%. It is also the fourth largest export market in the country with a 4.39% stake. Therefore, the impact on India is not likely to be very big. If Yuan is weak, then it makes imports cheaper from China; Dumping of products with additional capacity in China can be done. This can harm Indian companies. India can damage China’s raw material exports. On the positive side, India can become a destination for Chinese companies; It will make economic sense for the Chinese companies to move the manufacture of products sold in India. India can be benefited with Chinese help in infrastructure.