London, Oct 28 (IANS) Weak domestic demand has emerged as the main factor behind the slowdown in the Chinese economy and with people losing jobs amid the collapse of the country’s real estate sector, this problem has only become worse.
Chinese people aren’t spending enough money. China today has the lowest consumption rate of any major economy in the world. Consumption makes up just about 56 per cent of China’s GDP. In most economies, it’s 70 per cent or more. To put this in perspective, China’s consumption as a share of GDP is about 10 percentage points lower than Japan’s was in the 1990s, at the worst point in its economic stagnation, according to an article in The Diplomat.
The article observes that the low consumption is a flashing warning sign that China’s economic model is fundamentally broken. That’s why GDP growth is coming to a screeching halt, dropping from highs of 10 per cent or more in the early 2000s to under 5 per cent today, and China’s debt is growing to alarming levels.
The large trade surplus that China is enjoying is also an indication of the weakening of the Chinese economy. The Chinese people are not spending enough on imported goods because of financial constraints, leading to a fall in imports to China and a rise in trade surplus.
The slowing down of the rate of GDP growth to 5 per cent has also reduced the need for imported inputs of production, the article further states.
The article further states that low consumption in China is forcing the country’s industries to step up exports at low prices to flood the markets of other countries. However, this dumping of cheap goods in countries from Europe to Asia is killing manufacturing industries around the world.
While China has accumulated a massive trade surplus of $1 trillion, which is often seen as a reflection of the Asian giant as a manufacturing powerhouse, the truth is that it is also an indicator of weak domestic demand, a weakening Chinese currency and a slowing economy.
The International Monetary Fund has warned China against economic imbalances. A country of 1.4 billion people is too big to rely only on exports to ensure a high growth rate, IMF Managing Director Kristalina Georgieva has pointed out.
The continued dependence of Beijing on export-led growth is increasing global tensions. Other countries are looking to protect their industries from being destroyed by cheap Chinese goods by curbing imports from China, like the hike in tariffs by the US.
–IANS
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