The GDP growth rate of China for 2018 dropped to 6.6%, 0.2% less than 2017. This is China’s worst performance since 1990 when the country faced international sanctions following the Tiananmen Square Massacre. This drop in economic growth is heavily attributed to the ongoing trade tussle with the US and Beijing’s crackdown on a debt-fuelled corporate spending spree, due to which Chinese companies and consumers have suffered considerably.
The economic data report published on Monday revealed that the Chinese economy would continue to decelerate. The National Bureau of Statistics has shown that the GDP for the fourth quarter had dropped further low to 6.4%. This is the worst quarterly performance since the global economic crisis. As growth rate drops for three consecutive quarters, building concern among investors will pull down the global GDP rate.
The world second fastest growing economy is now a good 1.2% behind the number one India regarding yearly growth rate. In the recently concluded World Economic Forum in Davos, Switzerland, the IMF stated that the trade war between the US and China has adversely affected the world economy, as the estimated global rate has gone down to 3.5% for FY2019. Interestingly, estimates for India has been bumped up to 7.7%, while that for the US and China has remained unchanged.
The formidable Chinese economy, one of the major contributors to global growth, is slowing down at a time when the world wants it to grow. In fact, during the crisis of 2008, China was the one which lifted the world economy and helped it come out of the weak period. However, due to the US-China trade war and stricter policies back home, major sectors have slowed down significantly. Demand for money munching commodities like cars, smartphones, and real estate has fallen. This has made companies, both domestic and foreign, to rethink and redesign their investment plans for China.
European investments in China have come down substantially. With stricter, and somewhat, biased policies for foreign companies, like massive subsidies for state-run companies, mandatory transfer of technology, etc. have made doing business very complicated. Policymakers in China, however, have pledged to frame friendlier policies to reduce risks for further slowdown, though they want to avoid moves which juice up growth quickly but leave a mountain of debt, similar to the ones unleashed in the past.
Most analysts across the globe, however, have predicted that the Chinese economy will continue to decelerate for an extended period, before showing signs of recovery. Some experts have also suggested that the situation in China has worsened more than what’s being predicted. If the trade war with the US continues, expect even lower growth rates, which is very harmful to the global economy.
The IMF has already stated that the global economy is at a slump, with exceptions like India, and China’s growth is extremely crucial. The amount of investments at stake in China is humongous and decline in the Chinese economy will kill any chances of global economic resurgence.