China's Growth Prospects

We hear a lot of news on China’s economic growth slowing down, and what that could mean for China. I always take such news with a pinch of salt because it usually comes from the West (not exactly an unbiased source for such analysis). Which is why I was more receptive to Amit Kumar’s view. As Indians, we aren’t thrilled about China’s rise, but that doesn’t blind us to China’s achievements and prospects either.

 

If the world’s second largest economy at $18 trillion grows at 5.2%, is that really a catastrophic slowdown, asks Kumar. Isn’t it still a rate of growth that much smaller economies like UK, France, Germany and Japan would kill for? Kumar then proceeds to analyze the situation.

 

First, yes, the growth rate for such a large economy is impressive even at 5.2%. But with its huge population, that still means China’s per-capita is $12,000, making it a middle income country, not a high income one. A slowdown in growth should be a matter of concern for China – what if they are getting stuck at middle income levels, unable to rise to high income levels?

 

Second, many (non-China) predictions say growth will stabilize at 4% levels. Can they all be totally off the mark?

 

Third, the Chinese government made a conscious decision to slow down the real estate sector, one of the main drivers of growth all this while. Why? Because they feared the real estate industry was becoming a bubble, with too many loans being given/taken without caution, and thus a disaster waiting to happen. Even assuming that this policy was necessary, the problem is that no other industry has been able to take the lead in China’s growth.

 

Fourth, the US and its allies are trying to strangulate China in a key sector that was expected to drive China’s growth – technology. In addition, as the US pushes more and more countries to shift to a China+1 policy (spread their supply chains and manufacturing base to include one other major country, beside China), China’s manufacturing sector may well slow down.

 

Fifth, domestic consumption within China isn’t picking up as much as expected, even after the COVID restrictions were lifted.

 

Sixth, the timing of China’s aggressive foreign policy (Taiwan, South China Sea, India) is further antagonizing more countries, which then take restrictive trade measures at times, and become more receptive to Western overtures.

 

Is China doomed to settle at middle income levels? It’s way too early to say. But do they have many challenges facing them? Yes. Are those problems and risks insurmountable? No. All in all, I felt this was a measured and balanced analysis of China’s economic situation today.

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