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Chinese check: on economic troubles

China’s famed model of growth is under pressure due to fall in exports and investment

The Chinese economy is seeing the first signs of trouble after long years of sustained growth that rode on cheap labour and high volumes of exports. Data released by the National Bureau of Statistics on Monday revealed that the economy grew by 6.2% in the second quarter, its slowest pace in 27 years. This is in contrast to the growth rates of 6.4% and 6.6% reported for the first quarter and the full year of 2018, respectively. The faltering (almost stopped) growth rate was due to a slump (a fall in the price, value, sales) in exports in June amidst China’s ongoing trade war with the United States and the downturn (reduction in the amount or success of something) witnessed by sectors such as housing construction, where investor sentiments play a major role. Many economists believe that the worst may not yet be over for China and that economic growth could further worsen in the coming quarters. But just as growth seems to be faltering, the latest growth figures also showed that the retail sales and industrial output components of the growth numbers witnessed steady growth, suggesting that domestic demand may be compensating for the dropping appetite (a desire or need for something) for Chinese exports weighed down by high tariffs. But with China still heavily reliant (dependent on someone or something) on exports and its trade war with the U.S. showing no signs of coming to an end, the pressure on growth is likely to remain for some more time. So the Chinese government, which has tried to boost the economy through measures such as tax cuts, increased public spending and a relaxation in bank reserve requirements to encourage banks to increase lending, will hope that domestic demand for its goods will hold up the economy.

China’s quarterly GDP numbers, while useful in many ways, don’t reveal very much about the underlying challenges facing the country. One is the need to improve the credibility of data released by the Chinese government. An even larger challenge is the urgent need to restructure the Chinese economy from one that is driven heavily by state-led investment and exports to one that is driven primarily by market forces. The high-growth years of the Chinese economy were made possible by the huge amount of liquidity (the fact of being available in the form of money) provided by the Chinese state and the large and affordable workforce that helped build China into an export powerhouse. But now, with China’s tried and tested growth model facing the threat of getting derailed as the export and investment boom comes to an end, the Chinese will have to build a more sustainable model, or forfeit (to give up or lose something) hopes of double-digit economic growth in the future. As of now, there are no signs to suggest that the Chinese authorities are looking at implementing deep-seated structural reforms reminiscent (making you remember a particular person, event, or thing) of its early decades of liberalisation (the removal or loosening of restrictions on something) that can help fundamentally restructure the economy. There might not be a need for radical macroeconomic (the study of financial systems at a national level) changes, but China’s economic troubles will not go away unless the government boosts domestic consumption and reduces the reliance on exports.

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