Why China's Economy Is Slowing ? and How could hurt the world ?
It was supposed to be the year China's economy, freed from the world's toughest Covid-19 controls, came back strong to help fuel global growth. Instead, it faces a confluence of problems: sluggish consumer spending, a fragile housing market, falling exports and record youth unemployment. The impact of these tensions is beginning to be felt around the world, from commodity prices to stock markets.
1. Why China's Economy Is Slowing ?
Falling retail prices could lead households to postpone consumption, in the hope that goods will become cheaper tomorrow. This would reduce consumption and economic growth. But the widely seen 0.3 percent fall in consumer prices in July 2023 from a year ago was mainly due to rising food prices over the same period of 2022. Excluding volatility In food and energy prices, core consumer prices rose 0.8 percent in July. , up from the 0.4 percent increase in June. It may be premature to raise the specter of deflation based on a month of data.
What about private investment?
One of the reasons for weak investment, both public and private, in the first half of 2023 is that inventories of industrial companies at the end of 2022 were at an all-time high. China has not transferred money to households during the pandemic. But the government has cut some business taxes to indirectly support household incomes. So, in many cases, production continued while sales fell, inevitably leading to record levels of inventory.
During the pandemic, private investment continued to grow, but weakened relative to the pace of public investment expansion, and in the first half of 2023, for the first time, private investment fell by 0 .2%.
2. How bad is the Chinese economy?
China's official target is growth of around 5% this year. In a global economy that is expected to grow a meager 2.8% in 2023, that doesn't look too bad at first glance. Factoring in that effect, growth for 2023 will look closer to 3%, less than half the pre-pandemic average, Bloomberg Economics said. In addition, the consumer inflation rate in China remained stable in June, while ex-factory prices fell further, fueling concerns about the risk of deflation – a downward spiral in prices that can destroy an economy.
IMF sees growth slowing economy in 2023
Notes :
- Goldman Sachs, China: Consumer Dashboard 2023Q2, August 7, 2023.
- Goldman Sachs, Signals from Chinese Import Data, August 15, 2023.
- National Bureau of Statistics via Wind.
- Gavekal Dragonomics, The Inventory Hangover, July 31, 2023.
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