Chinese Economic Growth Rate Reaches Lowest Level in 30 Years
China’s export sector has experienced a dip in the last quarter. (Wikimedia Commons)
Experts expect Chinese economic growth to be about 6.1 percent after preliminary data from the third quarter became available on October 11. This signals the continuation of an economic downturn exacerbated by the trade war and shrinking infrastructure investment opportunities.
Down from 6.2 percent in the second quarter, the latest growth rate is the slowest in 30 years. Depending on Chinese economic performance in the fourth quarter, annual growth could still hit the bottom end of Beijing’s target of six percent to 6.5 percent.
China’s economic slowdown is partly due to a shrinking labor force. Moreover, the rapid completion of infrastructure projects has decreased the number of investment-ready projects, causing a downturn in profits from capital formation, which has usually helped to support the economy. The debt-ridden government has also been reluctant to lend large amounts of money to companies in order to stimulate growth.
China also faces pressure from its ongoing trade war with the U.S., and its export sector has taken a hit during the last quarter. Tensions with the U.S. have also contributed to a reluctance to spend at home, resulting in an overall dip in consumer demand. Finally, a recent outbreak of African swine fever has killed a large number of pigs, driving up pork prices by more than 70 percent compared to a year ago and putting an additional strain on the economy.
On October 14, Premier Li Keqiang called for Chinese governors to do “everything” necessary for “ensuring [economic] targets for this year are achieved.”
“The downward pressure on the economy is increasing continuously, and many real economic entities are struggling amid weak domestic demand,” he added.
The Chinese government has come to rely on rapid economic expansion to maintain domestic political stability. As the economy slows and as the promise of economic prosperity threatens to unravel, the Chinese Communist Party may be forced to confront challenges to its legitimacy and authority.
The government’s current economic strategy is to ease the slowdown of growth and avoid a sudden downturn. According to Larry Hu, chief China economist of Macquarie Capital, “China’s growth will trend lower without a major policy loosening. What worries me the most is the possibility of a downward spiral.”
China has also been attempting to shift its economy from being primarily export- and investment-driven to an economy that is more reliant on consumption and technological innovation. However, these efforts face obstacles from the ongoing trade war.
“The two countries appear to have made little to no progress on the structural issues at the heart of their trade-technology dispute,” wrote Shaun Roache, an S&P Global Ratings’ economist.