China's Growth Engine Under Lens – Any Ray Of Hope?

  • Jan 20, 2019 AEDT
  • Team Kalkine
China's Growth Engine Under Lens – Any Ray Of Hope?

Policymakers and economists across the world are fretting over sluggish global growth with a dim outlook. The global economy is further expected to plunge in 2019 with economies facing the brunt of UK struggling with hard Brexit, global political uncertainty, volatile markets and US-China trade negotiations.

China’s growth model is under suspicious eyes of analysts, posing a potential threat to the world’s financial stability. Warning light was flashed by the recent data which suggests sluggish China’s economic growth, tanking to 6.5% in the third quarter of 2018. This is the slowest recorded growth for the economy since the recession of global financial crisis of 2008. The latest Reuters report anticipated Beijing downgrading its growth forecast to 6%-6.5%, as compared to previous projection of around 6.5%.Apple Inc released a major warning at the beginning of new year regarding its iPhone sales, by lowering the first quarter revenue guidance on account of lower Chinese iPhone demand. Recent trade data indicates falling imports and exports of China for the month of December. China’s exports noted a fall of 4.4% on account of ongoing US-China clash over trade barrier. The imports recorded a slump of 7.6% attributable to weaker domestic demand.

China, world’s largest car industry recorded a 4.1% dip in passenger car sales, 5.2% slump in auto production and overall 2.76% drop in auto sales. This was noted for the first time in around three decades attributable to factors such as trade war feeding into lower income growth, rising prices and political unrest. As predicted by Goldman Sachs Group, Sales volumes is further projected to fall by 7 % this year in China as the car market enters an unprecedented multi-quarter decline.

The ongoing trade war between world’s growth leaders US and China has been one of the crucial factors contributing to major macroeconomic disturbances, cooled down economy, reduced factory output and dropped consumption and import demand for the Chinese economy. Since taking official charge, Donald Trump has posed series of tariffs totalling more than $250 billion on Chinese imports to punish the unfair trade practices. WTO Chief has warned both the nations for igniting the fire to world trade crisis.

However, we cannot overlook the potential upside to the China’s growth model. The economy may proceed towards a recovery path, supported by Central Bank’s loose monetary policy measures and government adopting a rational and proactive fiscal policy.

The ongoing trade negotiations between global giants offers a ray of optimism. The potential deal discussion scheduled for March 2019 is eagerly awaited based on official discussion between US and China officials last week. A balanced trade pact between US and Chinese policymakers may offer a driving force towards economy recovery. The policymakers are also urging the economy to utilize the untapped domestic tourism sector to prevent the cooling down of the economy.

The further progress of China’s so-far sustained growth model will be closely monitored in near future.


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