Why China’s economy is slowing

China is slowing rapidly, and the government is taking only modest steps to protect the world’s second largest economy from a total contraction.

Important reasons: Although lagging behind the United States in size, the Chinese economy has been the largest source of growth in global GDP for over two decades. In short, China is a global engine of corporate profitability, investment activity and demand for commodities.

News promotion: A slew of disappointing economic news this week shows that China’s growth is still frayed on multiple fronts.

  • The industrial sector slowed down again. Industrial production in July rose only 3.8% year-on-year, well below his forecast of 4.5%.
  • The crisis in China’s housing sector continues to hit. Capital spending, of which housing is a key component, increased by just 5.7% in the first seven months of the year compared to the same period in 2021 (as of July 2021, this figure is up from the previous year’s figure). increased by 10.3%.)
  • Consumers are not picking up the slack either. July retail sales rose slightly by 2.7% year-on-year, well below his 5% forecast.

environment: When faced with a recent slowdown, Chinese policymakers quickly turned to proven tools to try and boost growth. They included…

  • Funding public infrastructure investment.
  • Set up a borrowing boom to boost domestic spending.
  • Realize significant rate cuts.

conspiracy: Despite the current economic situation in China, there are few signs that the government is determined to support growth.

  • In past slowdowns, “total social lending,” China’s broadest measure of credit to the economy of all kinds, has soared, prompting the government to increase its debt to offset a recession. It is a sign that
  • A report on Friday showed total social lending was far below expectations as the government appeared reluctant to use the debt-led boom as a source of growth.

Yes, but: The People’s Bank of China cut interest rates by a tenth of a percent on Monday. Most analysts believe the move will be modest and unlikely to revitalize economic activity.

To the point: The ruling Chinese Communist Party knows it is unlikely to match the breakneck pace of China’s economic growth that has prevailed over the past few decades. But unlike decades past, they don’t seem particularly concerned.

  • That could mean that China will cease to be a reliable growth engine in the years to come for the rest of the world.

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