Friday 30 October 2015

CRASHING STATE OF CHINESE ECONOMY


China, the world’s second largest economy after US is has been experiencing an economic slowdown. According to experts, the main reason is that the model underlying the previously rapid growth was unsustainable. China has experienced a stock market crash all summer. It has now been importing fewer raw materials and exporting fewer finished goods. Its ripple effects include a sharp contraction in shipping through Singapore, resulting in general decline in the volume of world trade. It is also one of the reasons for falling price of Australian dollar.
Chinese economy is currently hovering around seven per cent. According to IMF, China's growth is expected to slow from 7.3 per cent in 2014 to 6.8 per cent this year and 6.3 per cent in 2016 as the country struggles with its shift from export to consumption-driven economy. There are various reasons for the falling economy of China.  Authoritarian political system makes it difficult to regard any of China’s economic data as reliable. Hence, it is difficult to make inferences based on data provided to countries which have strong economic relations with China. Chinese economic statistics are not fully computerized, and therefore they are a product of a closed and opaque political system with no press freedom.
Economic growth of China was based on unsustainable levels of investment powered by both public and private sector. Investments produce an ongoing flow of services in the future. But in practice, there is only so much useful investment that can be made in any given span of time. Over-time, diminishing returns set in and level of investment falls. In China, investment had been accelerating even as the country got richer-a trend that needed to be reversed. China needs to have more people working in consumption based systems rather than investment based.
To give the economy a boost, China has announced a series of new steps, including tax cuts, the construction of a multi-tier transport system, involving railway, highway, waterways and aviation-network construction, in the Yangtze river basin, part of economic belt along the waterway, and expanding financing for exporters. More than 10,000 startup firms are being set up every day in China as part of new reforms initiated by the Chinese government to halt the slide of the economy.
China sees more than 10,000 firms born every day amid government support for entrepreneurship and so far about six million new startups have been setup, Xin Guobin, vice minister of Industry and Information Technology said. Most of the firms are small enterprises. Data was collected last March through the end of August this year and about six million firms were registered during the period. According to Xin, the government has been cutting taxes and fees, helping small firms save about 48.6 billion yuan ($7.93 billion) in the first half of the year. Also, lending to small firms stood at 16.2 trillion yuan ($2.7 billion) at the end of June, up 14.5 per cent from last year. However, he admitted that the small firms are facing challenges amid the economic slowdown, slumping product prices, rising costs and production overcapacity.
The new startup campaign has been initiated by the government as the economic slowdown is causing big job losses all over China. The start-ups are expected to revitalize the economy taking advantage of the booming e-commerce. The campaign is also expected to help the government's drive to boost the domestic consumption, changing the orientation of the economy from export dependent to that of the one based on domestic consumption.

Tanya Srivastava

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