«A new phase of development»: why China’s economy may slow down to a minimum over the past 30 years

«A new phase of development»: why China’s economy may slow down to a minimum over the past 30 lekgotla link

Vladimir Agoev
October 16, trading on the stock markets in Asia ended with the decline in Chinese stock prices. Investors have negatively reacted to a new report from the International monetary Fund. The organization downgraded the assessment of the Chinese growth to a minimum over the past 30 years. In part, experts attribute the decline in expectations with the trade war between Beijing and Washington. At the same time, a major factor in the Outlook revision was the change in the structure of the economy of China: an Asian Republic less focused on exports and more on imports and domestic consumption. According to analysts, due to new reforms China is increasingly approaching the status of developed countries.

  • © Carlos Barria/Reuters

Wednesday, October 16, indicators, platforms Chinese SSE Composite and the Shenzhen Composite declined by 0.41% and 0.38%, respectively.

The decrease in stock quotes in China occurred after the publication of the report of the International monetary Fund (IMF) on prospects for the global economy. In its report, the organization has lowered its forecast for growth of China’s GDP in 2019 from 6.2 to 6.1%. The estimate for 2020 was reduced from 6 to 5.8%.

According to the statistics of IMF, the value may be the lowest over the past 30 years. So, since 1990, the growth rate of China’s GDP never fell below 6%. Even during the Asian and global financial crises in 1997 and 2008, the economy continued to grow by 8-9%.

One of the reasons for the worsening Outlook, the IMF called increasing trade disputes between the US and China. According to experts of the Fund, the tariff war virtually stopped the growth of world trade. As a result, by 2020 the global economy could be short $700 billion.

«Trade tensions between the US and China together will reduce global GDP by 0.8% by 2020,» — said in the report, IMF chief economist Gita Gopinath.

Mutual trade restrictions in the US and China triggered a decline in business activity in industry in the Asian Republic. Over the past year, the PMI fell from 50.8 to 49.8 points. This is evidenced by the research of the analytical Agency IHS Markit.


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Traditionally, the PMI index reflects the actual state of a particular industry. A reading above 50 points indicates positive economic situation, below 50 points on the stagnation of the sector.

Recall that the trade war between the US and China began in 2018. States has accused China of illegally obtaining U.S. technology and intellectual property, after which increased duties on imported Chinese goods. Beijing has imposed retaliatory measures.

In may 2019 Washington went to the aggravation of the conflict: in addition to the introduction of new fees, American technology companies have begun to cease cooperation with Huawei. In August, the country once again failed to agree on the terms of a commercial transaction and since September has introduced a new mutual constraints.

Following talks in October, China and the United States were still able to partially agree on the terms of the bargain. Meanwhile, global investors are waiting for a final ceasefire between the two countries. In an interview with RT said the Director of analytical Department of the IR «freedom Finance» Vadim Merkulov.

«A preliminary agreement applies only to the financial services and the supply of agricultural products. Meanwhile, both parties are still far from concluding any comprehensive deal. Current until the negotiations affect some of the key differences, which makes Chinese indexes confidently grow», — said Merkulov.

Largely tariff confrontation States and China has complicated the development of the sector of high technology in China. In an interview with RT said the head of the School of Oriental studies of the HSE Alexey Maslov.

«The trade war has become a serious challenge for the reconstruction of the Chinese economy. China tried to create new drivers of GDP growth using the yield on high-tech markets, but the US is not allowed to do. Accordingly, Beijing will need to restructure their strategy,» — said Maslov.

The circle of developed countries

It is noteworthy that RT interviewed experts do not think a trade war with the USA the main factor of economic deceleration of China. As noted by Alexey Maslov, the growth rate of GDP began to decline before the intensification of the conflict with Washington. According to experts, the economy is slowing down naturally after the rapid acceleration since the early 1990-ies.

According to the IMF, over the last 30 years, the GDP of the Asian Republic was growing at 9% per year, and in 1992 and 2007 the growth rate exceeded 14%. A gradual slowdown began only after 2010.

According to the assessment of Alexei Maslov, the Chinese economy has exhausted its previous growth drivers. First of all we are talking about cheap labor force, large inflows of foreign investment and a high proportion of the working population. In addition, the Republic has become less focus on exports and more on imports.

«Previously, the annual growth of China’s GDP by almost 40% dependent on exports. In 2018, the corresponding share is below 20%,» — said Maslov.

The volume of purchased products, China is slowly catching up with the US — the world’s main importer of goods. According to WTO data, in 2008 the volume of American imports exceeded China nearly $1 trillion. By the end of 2018 Beijing has managed to reduce the deficit to $482 billion.

Moreover, in 2018, China’s share in world imports increased from 10.22 to 10.75%, while the share in exports did not change and remained at the level of 12.77%. The emerging changes in the economy associated with the approach of China to the level of developed countries. In an interview with RT said the head of the Department investiga «BCS» Narek Avakian.

«The Chinese government in 2013 took a course on the changing fundamentals of the economy from exports to domestic demand, the country’s leadership is trying to increase the purchasing power of the population. In principle, it is quite logical, since at the current development level of China is quite close to some countries close to developed status,» said Avakian.

For the future transition into the category of developed countries, China actively rebuilds the economy from production to consumption. In many respects this became possible due to the emergence of the middle class in the country. This was in conversation with RT said the head of analytical Department «Finist» Katya Frankel.


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«Today, the Chinese middle class is gradually turning China into the main consumer. This makes China less dependent on external economic and political world situation. If before the production of dispersed, China’s GDP, including during the universal economic crises of 1997 and 2008, it is now a contribution to make and services, which is developing as rapidly as the industry,» said Frankel.

According to the world Bank from 2008 to 2018, the share of industry in GDP of China dropped from of 46.9 to 40.7%, agriculture — from 10.2% to 7.1%, and the scope of servants rose from 42.9 to 52.2%. While domestic consumption today provides more than half of GDP growth. In an interview with RT said the expert of the Academy of management Finance and investment Gennady Nikolaev.

According to the analyst, the economy has moved into a new phase of development and may continue to slow down in the coming years. According to the IMF forecast, in 2024, the country’s GDP growth will amount to 5.5%.

«The reduction in GDP growth below 6% is a quite natural phenomenon: the more the economy, so it is more difficult to demonstrate accelerated development. Just look at the figures of developed countries: projected values of the GDP USA, France, UK, Japan do not exceed 2.5% per year. China has surpassed the States in terms of purchasing power parity and ranked second in nominal GDP, so it is obvious: China has entered a new phase of its development and such high performance to demonstrate will not be», — concluded Nikolaev.

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