The multiplicity of global economic complexity of the recent past and a fragile economic future has led the Asian economic linchpin, China, to cut its growth forecast. Recently, the country cut its economic growth rate to 7.5 percent from its previous 8 percent, which had been in place since 2005.

Premier Wen Jiabao, in his annual state of the union, announced at the National People’s Congress in Beijing that the government has a gross domestic product target of 7.5 this year. This is the lowest economic growth target for China since 2004.

Across the board, there are plenty of problems that may impart great damage on the Chinese economy. Starting with a decline in European services and manufacturing output, a fall in US factory orders for the first time in three months, and an impending Greek debt storm, China is going through a radical demographic makeover.

The main suspect for this turnaround in growth forecast is the debt crisis in Europe and the US. This is because there is an iron-strong connection between what China produces and with whom it exchanges goods.

Demand for Chinese goods declined in troubled economies due to falling employment, diminishing domestic production, dragging corporate profits, high borrowing costs for the government, and perhaps only a few ways to get out of it. After years of a torrid growth rate of at least 9 percent, China needs better quality development over a longer period of time. Economists and investors agree that China is now entering a new era of slower growth rate, where the 8 percent growth figure is no longer important.

On the other hand, what happens in China does not stay in China. China had been the number one trading partner for most Asian countries, and a declining economy for the dragon will hit many Asian economies negatively. On the face of it, Chinese commodity imports may slow down, impacting economies from Australia to Brazil.

Interconnections at the global economic platform have created a scenario where it is legitimately impossible to imagine escaping from these  events.  It is ubiquitous that a lower phase of GDP growth in China will diminish import demand in the country, affecting economies or trading partners directly.

In a globalized environment, interconnection is interdependence. Suppose, for example, X is partly independent, and Y and Z are mostly dependent on X.

Any event that has a direct forbearance on Y and Z that takes place in X will for sure impact both Y and Z. In this case, export-oriented economies, like Australia, whose economic growth was derived from fast and partly unfettered GDP run-up in China, will suffer. On the face of it, prices of copper, gold, and the Australian dollar have fallen immediately after the announcement in Beijing, mining stocks in the Australian stock exchange felt headwinds, and the region’s stock market closed on a weak note.

Gerard Lyons, chief economist at Standard Chartered Bank in London, stated, “What the authorities are trying to do is to move from strong to sustainable rates of growth. No one is quite clear where sustainable is, but clearly, it’s one that’s slower than we’ve seen in the recent past.”

At the end, we could say there is a possibility of radical economic transformation in China, emphasizing development, rather than an erratic chase for economic growth.

Image Courtesy of  BartlomiejMagierowski / Shutterstock.com

Share This

• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 

About the author

Muhammed Faraaz
Post-graduate in Economics from India, unfolding complexities and policies. Proponent of Classical Economics.

1 Comment for Chinese Economy Slows Down

Asif Iqbal

Good Job Altogether

Reply