What happens with China’s economy?

China's GDP growth has been declining quarterly since early 2010. It should come as no surprise that the Chinese economy has slowed down after more than four decades of astonishing expansion. After a gradual decline from 10.6% in 2010 to 6% in 2019, it is unclear whether China’s growth will continue to contract and at what level it will stabilize[1]. This decrease in GDP growth rate is largely owing to the country’s early abandonment of monetary policy due to an excessive fear of financial instability. However, one can argue that long-term structural problems were to blame for the inevitable slowdown in economic growth, whereas others believe that China prioritized reducing its debt leverage ratio even at the expense of growth in order to avoid a financial crisis.


In 2022, the economy of China is expected to deteriorate. The strongest COVID-19 wave in two years has disrupted China’s growth normalization after a good start in early 2022. It is anticipated a significant slowdown in real GDP growth to reach 4.3 percent in 2022.[2] The economic damage brought on by Omicron breakouts and the extended lockdowns in several areas of China from March to May is mostly reflected in this sharp fall.


The level of risks to China’s growth is unbalanced with downside risks dominating, therefore economic disruptions might last longer if COVID-19 variations that are newly emerging are more contagious. The major challenges facing China’s economic growth are regaining the growth lost since March and attaining a growth rate that is not too far off the 2022 objective of 5.5 percent. China is compelled to implement an expansionary fiscal and monetary policy in order to boost the economy. Therefore, the most concerning issue for China is how to balance COVID-19 pandemic control with economic growth.


Inflation could also represent a problem in China’s economy at the moment. Energy and food costs may rise further as a result of the conflict in Ukraine and intensifying sanctions against Russian gas and oil. China is the world’s greatest trading country, and as such, its manufacturing products rely heavily on imported raw materials. Given that the Chinese government’s top aim is to stop the slow but steady decrease rate in GDP growth rate, China may need to adapt to living with a higher inflation rate.

 

Edited and Reviewed by Tanish Bagga.

 

References/ Further Reading:

[1] EAST ASIA FORUM. Economics, Politics and Public Policy in East Asia and the Pacific [2] THE WORLD BANK. China Economic Update – 2022

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