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Why is Chinas Economic Growth Slowing Down - Essay Example

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China’s economic growth will hit the lowest ebb in 2012, as stated in recent report published by the World Bank. However astoundingly, while the long-term trend indicates a slowdown, figures released by the Chinese government paint a more nuanced and mixed image of the economy. …
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Why is Chinas Economic Growth Slowing Down
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Why is Chinas Economic Growth Slowing Down

Download file to see previous pages... China single-handedly accounts for approximately one-fifth of the total world economic output; thereby, a slowdown in Chinese economy will hinder a global recovery. In addition, several of Asia’s largest and emerging economies have struck deal with China as a trading partner; hence, a downturn in Chinese economy will adversely affect them. Until 2010, Chinas economic growth rate was more than ten percent, which encouraged officials to boost domestic consumption combined with a reduction in exports to accomplish sustainable growth. Consequently, while the construction and industrial boom decelerated, the retail sales held up strong. Many of today’s economic issues can be traced back to the global financial crisis period between 2008 and 2009 when China attempted to accelerate economic growth through injecting capital and boosting government spending. Back then, the central government pumped tremendous amounts of money in the economy by investing in infrastructure and construction industries. However, on the downside, this created excess capacity, property prices soared sky-high with a simultaneous rise in inflation and consumer costs. Faced with these economic plights and the fear of Chinese economy overheating, policymakers then implemented measures aimed at curtailing lending and slowing down inflation. Unfortunately, these measures along with a sharp drop in the global demand for Chinese goods triggered the recent cycle of a slowdown. A fact that Chinese policy makers failed to take into account is that credit does no more good to economy than steroids do to body, every time bigger injection are needed to maintain the desired effect. In 2011, Chinese economic growth rate was 9.2 percent in contrast to the rate of 10.4 percent during 2010. Despite the imminent cyclical weakness that will decelerate China’s economy, even more, Chinese officials claimed that there is a way out. The World Bank has also supported this argument as it stated that the prospects for a soft landing appear positive, as China has largely mitigated the domestic property bubble invigorated by speculation. Chinese officials hold that they are working to temper the super economic growth towards more sustainable growth without triggering an economic recession. One of such simulative measures included the recent cut in interest rates after June by The People’s Bank of China. Likewise, the central government is striving to spur growth by relaxing reserve requirements so that bank lending could accelerate, which in turn would lead to greater injections of credit in the economy (Bradsher “Heavy Lending Creates a Surge in Chinese Economy”). Although, the construction and industrial sectors have registered a slowdown; however, retail sales have stayed strong. The Chinese government is determined to rebalance the economy by reducing reliance on investment and exports and escalating domestic consumption (Bradsher “Chinese Official Reaffirms ‘Rebalancing’ of Economy”). Policymakers hold that the government is empowered with myriad tools to prevent an economic collapse. They pointed out how unlike other major economies such as America and United Kingdom, China managed to survive through 2009’s recessionary period, marked by extensive layoffs and social unrest. Officials contend that they are deliberately aiming for sustainable growth after double-digit growth registered in the previous years that overheat the economy. Therefore, for them, the economic slowdown is solely a planned action. Official economic statistics released by China are futile in stopping the economic squabbling about the soft landing prospects for Chinese economy. The increasing ...Download file to see next pagesRead More
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