The economy of China further reached a low gear in Q2, with GDP coming to 6.2%, the nearest low in three decades, driven to a large extent by the lingering trade tensions between the United States and China, which have cooled exports and investment. The Chinese government has released a string of support measures for boosting fiscal spending as well as the cutting of interest rates and other policies in the economy, but analysts have warned that these measures may not be enough to stop the slowdown.
“We expect China’s growth to continue to slow in the coming quarters due to the ongoing trade tensions,” said David Carbon at research firm Eurasia Group. “The Chinese government should step in with more drastic measures to stimulate the economy and avoid a full-blown recession.” The drag from China has also spread to other economies, especially those that are highly trade-dependent. Japan’s economy contracted 0.2% in the second quarter, and South Korea grew at a slower pace than was forecast. The slowdown in the Chinese economy is a major concern for the world economy because China is the second-largest economy and still stands as one of the biggest drivers of economic growth across the globe. Diminishing growth in China is likely to adversely affect globalization, trade, and investment across the world, causing immense spillover effects on various economies.
The trade tensions between China and the United States started last year when President Donald Trump placed tariffs on $250 billion worth of Chinese goods in the hopes that it would address unfair trade practices on the part of China. The country retaliated by slapping tariffs on $110 billion worth of U.S. goods, hence catalyzing a cycle of higher tariff implementations throughout the year. The tensions are also taking a heavy hit on the economy of China, and exports dropped 5.2% in June compared with the same period last year. Its manufacturing industry likewise has suffered a major reduction, with a slippage of 1.3% in July compared to the same period last year. But most analysts do come to the conclusion that, despite all efforts from the Chinese government to jumpstart the economy, the country really is facing a deeper economic crisis than had been previously expected.
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Their debt levels are high, and the financial system remains very vulnerable to shocks. “The Chinese government has been trying to stimulate the economy through monetary policy and fiscal policy, but these measures are not effective,” said Li Yang at research firm Gavekal Dragonomics. “We expect China’s growth rate to continue to decline in the coming quarters unless there is a significant improvement in trade tensions.” One of the things the Chinese government has drawn widespread criticism for is the way it has managed its economy right from the outbreak of the crisis; many argue that this has been done with a hypoproactive gait. The government is also charged with favoring the state sector and vested interests rather than small enterprises and private companies. This has, at the same time, affected the social stability of China, whereby the young people are challenged by unemployment rates and access to houses. The state responds through policies to boost employment and alleviate poverty, but the efforts are seen as insufficient.
China is not only experiencing a slowdown in its economy, but it also faces several crucial challenges globally, embattled by territorial disputes with its neighbors over human rights issues and the current strained major trading relations with the likes of Japan and South Korea. Although not on a spur, many analysts hold that China will creep out of its economic slowdown. This is a country with a long history of economic challenges, which it has always managed to overcome; its leadership is very good at formulating and implementing policies in order to affect growth. “We see a sharp recovery in China’s growth in the quarters ahead as a strong base combined with easing trade tensions and domestic demand gains pace,” said David Kern, chief economist at the research firm Oxford Economics.
“The only words of caution are that China’s government needs to reform its ways and be seen to be more transparent and accountable concerning economic policies.” In total, China’s slowing economy is one of the biggest concerns for the global economy, especially in the wake of the unwinding cure in the United States. There are many woes rattling China’s economy, yet most analysts hold the view that it will manage to find a way out of the slowdown mess.
