Foremost, it’s not just China. It’s the entire world.
We’re going through a global economic slowdown. The fear of recession looms high in the USA. And if that happens, and when the Fed changes its interest rate, it’s going to affect the whole world.
Even if you look at countries individually, top economies are showing signs of a downturn. It includes everyone from France and Germany to the UK, China, and India.
Only a few days back, the Economic Times published an article titled “Global recession coming soon! Yield curves invert in US & UK”. Give it a read here.
Many experts and economists believe that the world is entering into economic downturn.
And honestly, it’s quite expected. Since the last recession in 2009, we’ve had one of the longest stretches of a boom period in decades. We are in the last phase of the recovery period. Consumer spending, a critical determinant, is decreasing in major economies.
The growth has slowed down. The inflation is too low which leaves central banks very little room to flex their monetary policies to thwart back the possibility of a recession.
And then, of course, there’s the ongoing trade war between the USA and China which is affecting many big countries.
Then there’s also the worry of Brexit. Britain’s new PM Boris Johnson has worsened the already-complicated affair, claiming that the UK will leave the EU with or without any deal on October 31st. If a favorable deal isn’t made between the two parties, which is unlikely to happen really, it can affect the UK’s economy. And when that happens, that will cascade to affect other countries that the UK is in direct trade with. This will shake the global economic picture for the worse.
Many things are going on globally that hint at an upcoming recession. And as interesting as it may sound to the headline readers, elites, and fear-mongers, this is quite a serious matter that would affect billions of lives.
The pain and aftermath of the last recession still stand fresh.
BUT coming to your exact question about China in particular…
Yes, China’s GDP growth is at its lowest since the last global financial crisis. Its YoY quarterly GDP reading is the weakest since 2009.
The previous year in the third quarter, its economy grew by 6.5 percent, which was slower compared to the second quarter. This year, between July and September, experts believe that the economy grew by 6.6 percent – a meager 0.1 increase.
The demand in China has weakened. People are spending less money. There’s less investment in the infrastructure, despite the government’s efforts.
The trade war between the USA and China has weakened China’s currency and this is putting strains on its economy. To boost local spending, China’s central bank lowered its Reserve Requirement Ratio, making financing costs a bit cheaper. This can certainly help the economy find much more stable ground. But they have to be careful about inflation.
Honestly, every country, even with an open economy, has become quite insular. In India, the situation is no different. Growth has cooled down with a slowdown in many industries.
This is one of those times when countries must work together to tackle the beast that lies ahead. Acting individually in self-interest might not necessarily be a good idea. Because even if one big country’s economy collapses, it’s going to affect virtually the entire world. And, in India, we don’t have that infrastructure and economists like Manmohan Singh who shielded India in the last global recession, to keep our economy untouched and unscathed.
Hope this answers your question.