By Priyanka Roychoudhury
With India wounded severely by the ongoing financial crisis leading to the shocking depreciation of the Indian currency to newer lows, apprehensions of the BRIC countries of their future paths are making the rounds. Relatively unaffected to a certain extent during the initial years of the 2008 crisis, these nations are forced to pull up their socks as the US retracts its quantitative easing policies, moving along on its recovery path after the 2008-09 crisis.
However, the world’s eyes are focused on the most populated country who boasted of a scintillating 9.8% average annual GDP growth over the past three decades. The world’s second biggest economy, China’s economic expansion, however has been slowing for 13 consecutive quarters. This has been the first instance when the Chinese economy has faced such an extended deceleration in its growth since its coveted Great Leap Forward policies implemented in 1979. These statistics have raised questions among the experts of the field of whether China’s success story has still many pages left to be unraveled or is it nearing its end.
Just to get a perspective on the whole situation, it is good to start with comparing China’s GDP growth with the other major rapidly emerging economies. For example, Brazil’s GDP growth has slowed down sharply from, from 7.5% in 2010 to 0.9% in 2012. As for India, the growth in GDP has slowed down from an impressive 10.5% to 3.2% over the same period. So, relatively speaking, the drop in global demand as a result of the contraction of the major first world countries as a result of the 2008 crisis has had more adverse effects on China’s counterparts.
China’s chief economic planner told a press conference in early August 2013 that China’s 7.8% economic growth in 2012 should be evaluated positively and he is confident about the overall economy in the long run. In fact, the country’s real GDP grew at an annual rate of 7.5% in the second quarter which is exactly what the Chinese government had set at the beginning of this year.
Proponents of the continuing Chinese successful growth story base their support on the fact that with proactive fiscal policy measures and a prudent monetary policy China can very well continue on its planned growth trajectory. The country has high public and private savings, foreign reserves exceeding $3.3 trillion and a great potential for infrastructure improvement. Unlike the developed countries, developing countries like China are well within the global frontier and can hence enjoy the ‘latecomer’s advantage’.
However on the other front, there is another story to the Chinese growth story as well. The past 30 years of China’s economic development has also seen the rapid acceleration in the process of urbanization. This is bound to put pressure on the urban areas as unemployment increases as a result of the fall in global demand for its exports. The recent slowdown is not merely a temporary cyclical blip. China’s growth model has faced its glitches and it will be touch to fix them up easily. One of the growing concerns is that the country’s debt has soared to dangerous levels. If corporate and household debt is also counted, China’s total debt balloons to almost 200% of GDP. Analysts worry that credit is becoming increasingly inefficient reaching a scale which could retard growth with the central government is forced to back up the defaulting local governments or agencies.
With a shrinking working population and the rather significant downslide of investment growth (on which the economy is largely dependent on) the country requires to speed up its structural optimizing process and focus on a consumption led growth to tackle its problems amongst the many other solutions available to it. What’s left to be seen is how the Chinese economy performs for the rest of the quarters and how its story unfolds.
Stay updated with all the insights.
Navigate news, 1 email day.
Subscribe to Qrius
