In recent years, China’s economy has been experiencing a slow decline. It has been publicized that the country’s GDP has fallen to a low unheard of since the 1990’s, though surely the country has faced far worse in modern history. With China in recession in the early 1900s after being plagued by two World Wars and the Sino-Japanese war that brought on the Nanjing Massacre, China has built itself from the ground up to become the powerful contender it is today. These are days that Now begs the question, what caused China’s economy to slow down?
Essentially, it was inevitable that Chinese growth rates have begun to stagnate. The larger an economy gets, the more difficult it becomes to continue growing at a fast pace. China’s economy has grown so large in the past few years that a growth of 7% this year would yield more additional output than a growth of 14% in 2007 would. In the past few years, China’s growth has been increasing in labor, capital, and productivity explaining why they experienced such high growth rates in the previous years. However, at this point in time, they have all begun to show down. Another major reason that contributes to their slowing economy would be their binge on credit. The country’s total debt has reached an astounding 250% of GDP. This debt helped China through the global financial crisis, but now they are burdened with the task of repaying it. Much of their debt fell on property developers as China’s unsold homes have reached an all-time high. In previous years, the real estate sector accounted for 15% of China’s economic growth, but now could face outright contraction. Also, their technological gap with richer countries has narrowed, which could mean that productivity growth could decrease.
By this point, a solution to bring up the GDP growth rate would probably be the main concern if encountered by China’s previous leaders, but President Xi Jinping has decided to pursue an alternative route and suggested that more emphasis should be placed on structural reform than economic growth. This plan is difficult to achieve as the central bank has been unsure of easing into monetary policy. Meanwhile, changes to fiscal policy have impacted local governments and their institutions and have made it difficult to spend money. As consumer price inflation is at a record low and producer prices are facing deflation, many may argue that China is not performing at its optimal potential. The good news, however, is that China’s slowed economy is not permanent. China’s performance is expected to improve as the cycle shifts and the policies change.
However, some people would argue and say that the country’s economy is not actually slowing down. The thing about economic growth is that when people think of 7%, they deem it as slow economic growth, but fail to consider the fact that they’ve doubled the size of the economy in the past 15 years. It’s still going at the same pace, it has just gained more mass. The numbers are as large as they ever were. Ten years ago, the country’s nominal GDP was $2.7T, while today it is now a whopping $11T. China’s growth is still rampant, with last year alone revealing its growth to be more than the total economy of Sweden. China’s GDP growth rate is still 6.7%, and no matter how you look at it, 6.7% of the second largest economy in the world in yearly growth is still staggering. The numbers at face value may be deceiving, but in reality, China has been doing just as well as it has always been. As you can see, President Xi Jinping would not have disregarded the issue if it were a concerning one in the first place.