China is the second largest economy globally, 'the factory of the world'
and it’s home to a growing middle class with a lot of disposable income.
But it’s also embroiled in a trade war with the world’s biggest economy, the United States.
And American officials are going hard on China because they think its economy is vulnerable.
They respect us again.
America is back!
But is the economic superpower really slowing down?
A manufacturing survey in August showed that while China’s output continues to grow,
new orders are rising at their slowest pace in 15 months.
The trade war is likely to slow exports, but that’s just one of many factors
that could contribute to a slowdown in China’s growth.
Let’s go back to the basics.
China’s GDP growth has slowed significantly,
compared to its rapid rise over the last two decades.
But because China’s economic growth figures appear much more smooth and steady than other
countries’ peaks and troughs, some economists downplay the significance of China’s GDP figures.
Instead, let’s look at what’s driving the Chinese economy and how China is doing in these areas.
China relies on infrastructure to drive overall investment.
This type of spending on physical assets contributes to nearly half of China’s GDP.
That’s way more than any other major economy.
The bad news is that China’s fixed asset investment is slowing significantly, falling to a record low.
But some economists warn against paying too much attention to the
historically low figure because the way that data is measured is being revised.
China has typically relied on investment to grow its economy,
but it’s not so easy for the government to boost investment now.
That’s because of its growing mountain of debt.
The country had a relatively stable level of debt until the financial crisis in 2008,
when it spent a whopping 12.5% of its GDP to stimulate the economy.
Since then, its debt has steadily grown to almost 250%, much higher than expected
for an emerging economy, resulting in several warnings from the IMF.
Chinese authorities have been trying to rein it in.
In April this year, China’s state-owned banks were told to stop lending to local governments.
But its policymaking is also being affected by the trade war.
Recent reports say Chinese officials are pushing banks to lend more again.
A country’s exciting growth story usually comes from a rise in population and productivity.
For instance, India’s young population is the reason why it’s expected to take the
title of the world’s fastest growing major economy.
In contrast, China is the world’s most populous country, but it has a rapidly ageing population.
While China is trying to improve productivity through automation and robotics,
the effects of an ageing population single-handedly slows
GDP growth by between 0.5 and 1 percentage point.
Alright, so China is getting older, but older people can still be great consumers.
China is trying to count on its growing middle class to move its growth towards consumption.
But lately, there have been questions about whether the Chinese consumer
still wants to spend on this premium latte or pricey iPhones.
This year, China’s two major stock exchanges lost almost a quarter of their value,
prompting concerns that consumers will be tightening their belts.
But unlike in the U.S., analysts say China’s stock market is almost completely disconnected from its economy.
In fact, the story of consumption in China really depends on what data you look at.
Monthly retail sales have been slowing but quarterly spending,
which includes travel and education, are on the rise.
Similarly, China’s online retail giants reflect a nuanced picture of consumption.
In the second quarter of this year, Alibaba saw sales rise by more than 60% from last year.
Although, its rival JD.com faced slower sales.
There's a lot of talk about Chinese consumers downgrading,
but that means companies making affordable goods are still doing well.
For instance, a Tencent-backed app selling heavily discounted products called Pinduoduo
has rapidly become one of China’s top apps, drawing 300 million customers.
It listed on the Nasdaq in July.
China faces a lot of challenges to its growth.
Its engine may be sputtering now, but as it gears up to fight
the U.S. in the trade war, there’s no telling how its growth story will unfold.
Hey everyone, it's Xin En.
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