Chinese economy: Slowdown and way ahead

Abstract

China has witnessed growth in double-digits (10%) for almost nearly three decades. But the economic growth is now slowing down, especially after the 2008 crisis. China’s GDP growth was 7.3 per cent in 2014 followed by 6.9 per cent in 2015 and 6.7 per cent in the first quarter of 2016. India is now the fastest growing economy in the world. According to the IMF reports, China was the single largest contributor (average 31%) to the global GDP growth between 2010 and 2013.1 Now China is gradually moving to new growth model. Chinese slowdown has an impact on global economy through multiple transmission channels: financial, trade and commodities. Sluggish growth and uncertainty over how the new growth model will work affected the investor confidence. China, being a major trade partner of many countries, any economic activity in China has spill over effects across the world. Also, being the major producer of commodities like copper and aluminium, the global prices are linked with Chinese growth. China is transitioning itself from a developing economy to a developed economy. It is moving from an export-driven and manufacturing economy to an import-driven and service sector oriented economy. Also, after the 2008 crisis, the Chinese government spent around $586 bn which although was helpful only in short-term increased their fiscal deficit and public debt. According to the German finance minister, Wolfgang Schauble, “The Chinese economy is in the transition phase and slowdown is related to insufficient structural reforms”. While the French PM says, “Though it will affect China’s trading partners, the world needs to be ready for these new developments”.2 Since it is a subject that affects global economy, we felt it is important to study it in detail. The report studies the factors that led to China’s growth so far and analyses the current economic transition. It also studies the role of factors like government policies, privatization, innovation and shift towards HVA products in China’s new model of economic growth as it can be crucial. We also analyse how the structural reforms, the need of an hour for China, will play their part in long term sustainable growth of China.