US trade war takes its toll on the Chinese economy
China’s economy is decelerating but it has not come suddenly. It was on a downward trajectory for almost a decade now.
China’s GDP grew at 6.6% in the quarter ending December 2018. This is the slowest pace of growth for the Asian giant since March 1992 in normal times. This figure was 6.4% during the March 2009 quarter. But this came in the aftermath of the global financial crisis in 2008.
The deceleration has not come suddenly. After a brief recovery in the post-crisis phase, China’s GDP has been on a downward trajectory for almost a decade now. This was to be expected. No country can maintain double digit growth rates for ever. China hopes to replace investment by mass consumption as its future growth engine. But it will also have to reckon with the sobering impact of decelerating population growth, thanks to the one-child policy, on the economy.
Challenges to China’s growth are not just internal. Access to US export markets was an important pillar of the China growth story. The Trump administration believes that this growth has come at the cost of the American economy, particularly jobs. To undo this damage, it has now started a trade war.
The policy has come at a time when China is no pushover in terms of both economic and strategic might. Despite having lost its fastest growing economy status, China’s contribution to global GDP growth continues to be high. World Bank data shows that China accounted for more than one-fourth of global GDP growth in 2017. The figure was less than one-tenth for India. Any significant and sudden deceleration in Chinese economic growth is bound to have ripple effects across the globe. Given China’s infrastructural initiatives, such as the One Belt One Road project, these effects will come from more avenues than export markets.
What complicates understanding China’s future economic trajectory even more is the role of its communist state. Analysts expect the state to come up with strong policies to reverse the deceleration in growth. The same holds for its external engagements. Chinese retaliated against initial tariff hostilities by the US. On 18 January, 2019, Bloomberg reported that China is also considering reconciliatory tactics, and has made an offer of bringing down its trade surplus with the US to zero by 2024.
There has been much jubilation about India replacing China as the world’s fastest growing economy. However, we must not make the mistake of thinking that just because its growth rate is decelerating, China’s importance in the global economy will reduce significantly in the days to come.
First Published: Jan 22, 2019 07:50:58