Opinion | What is going on with China's economy
By Tom Fowdy
When COVID restrictions were lifted at the beginning of this year, the Chinese economy was anticipated to roar back. With GDP growth projections of 6% year on year, combined with the resumption of full, travel, trade and business, few were pessimistic. Yet by August, the reality has very much crystalized that this year has been lackluster for Beijing. Manufacturing has continually contracted month upon month, while exports have suffered their worst fall since the start of the pandemic. Naturally, the Western media is awash with negativity pertaining to China and its prospects, who are quick to conclude it is the end of China's rise, "a Japanese lost decade", etc.
First of all, it is naïve and selective to draw conclusions with respect to China's economy without the consideration of the broader global situation. The world economy is not in a good state. Most major economies are in a state of limited growth or even recession. Owing to the lagging effects of the Ukraine war, accumulating in surging inflation, interest rates have skyrocketed and as a consequence, economic activity has contracted, including consumption. This of course weighs down on the demand for manufacturing imports, which of course then hurts China.
In Britain, as one case study, I recently visited the country for the first time in a year and found that the costs of everything had skyrocketed, from products in supermarkets, to restaurants, to public transport, this has hit people in the pocket hard. In turn, retail chains and restaurants are throughout the country going out of business because they cannot need their running costs. The national retail chain Wilkinsons last week is going into administration. Of course, where do you think the stock for stores such as this is made? The answer is China of course, and if people are not buying, then China is not selling. Therefore, it has a run-on effect.
On the other hand, China's service PMI has continued to grow month upon month, showing a contrast to internal businesses, as opposed to external demand. But this does not mean there are other problems at play. Much has been said about the rise of youth unemployment in the country for one. But also, certain political decisions that have been made in recent years, such as the crackdown on tech, the over excessive lockdowns (The Shanghai one being the tipping point) have hurt the domestic economy and also people's confidence. This has coincided with geopolitical tensions which have also clearly damaged the confidence of Western-based investors, and the statistics don't lie when it comes to this, overseas investment in China has slumped.
While of course the situation is never as nightmarish or disastrous as the Western media narrative will push, which in and of itself is part of the psychological campaign against the Chinese economy, it remains true that Beijing needs to take a course of action whereby it reinspires confidence in business against the image of arbitrary, reclusive, inconvenient and unmanageable series of risks. Although this is a clear effort by China's leadership, it needs to avoid escalating tensions with the West and work harder to alleviate things, and avoid falling into strategic traps set over issues such as Taiwan. It also needs to take more decisive action to regard to monetary policy and stimulus in order to salvage its own momentum in the view to proving the doubters wrong and reassure western businessmen.
Overall, the business climate we live in today is poor, that's because the world is experiencing grave uncertainties and affective instability. A stagnating global economy, the context of geopolitical competition and war, and an aggressive United States government, are all weighing on investors' confidence. But in addition, it must be said too that China has made decisions which are ultimately detrimental to itself, and have been manna from heaven to those who want to encourage disengagement with it. If the world economy is an ocean to sail through, it's currently experiencing a storm. It's not truly possible to end all the factors that are causing it, ranging from US foreign policy goals, to the war in Ukraine, but it is time to take more contingency plans and be positive.
The author is a well-seasoned writer and analyst with a large portfolio related to China topics, especially in the field of politics, international relations and more. He graduated with an Msc. in Chinese Studies from Oxford University in 2018.
The views do not necessarily reflect those of DotDotNews.
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