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Business Insight


Business Insight

China's Economic Slowdown

Investors have been keeping a close eye on China as the Shanghai market has remained volatile since the beginning of the year.

The country just released its latest GDP data. The figures show that the economy lost steam in 2015, as many analysts had predicted. In fact, they show that the economy expanded at its slowest pace in 25 years.

The National Bureau of Statistics says gross domestic product grew by 6.9% in 2015. That's down from 7.3% in the previous year. It's also the slowest since 1990, when the country's economy was hampered by sanctions following the Tiananmen Square incident of 1989.

"A growth rate of 6.9% is not a low figure. The number also shows the pain that has accompanied our economic reforms."
Wang Baoan / National Bureau of Statistics Commissioner

The pace of growth in the final quarter of last year was 6.8%. The government had set a target for annual growth of around 7%.

Some analysts say the leadership has stepped up efforts to stabilize the economic slowdown by cutting the key interest rate and investing in infrastructure projects.

But they say weak demand at home and abroad, industrial overcapacity, and faltering investment are weighing on the economy.

For more insight, NHK WORLD's Ai Uchida spoke with Peter Morgan. He's a senior consultant for research at the Asian Development Bank Institute, and a specialist on China's economy.

First, he gave details about the biggest factor weighing on growth.

Morgan: The biggest factor is the slowdown in fixed-asset investment. There are a number of factors behind that. Manufacturing has been weak because of the weakness in global exports. Also, the real estate market has been cooling down so that's had a negative impact on housing investment. On top of that, the weakness in the stock market has also had a negative impact on financial sector activity.

Uchida: People do raise doubt over the official figure. Skeptics say the economy is growing much slower, some say even in the 5% range. If that is true, why would officials inflate the numbers?

Morgan: First, I think that is a broadly-held view, and if you look at the manufacturing-related indicators such as electricity production or transport volume, those certainly do suggest weaker growth. There is a question about service sector growth though, and that's harder to measure. But I think the major reason for possibly exaggerating the growth figures is that the careers of officials in China depend largely on the growth rates they can deliver in their districts, so there's a huge incentive to exaggerate growth rates, and even though that gets pared down somewhat when it gets to the national level when they put together all the regional growth estimates. Still, I suspect there's some incentive for exaggeration, particularly given the growth target of doubling income by 2020.

Uchida: Looking ahead, according to China's state run media, leaders want to achieve a growth rate of at least 6.5% over the next five years. Is that feasible?

Morgan: It is a significant slowdown from the previous five years so I think it's at least feasible, but given the negative factors both domestically and externally, it will still be a challenge to deliver.

Uchida: What domestic risk will be the biggest challenge for policymakers to tackle in 2016?

Morgan: Short term, I think capital outflows are a significant problem because the weakness of the UN is complicating efforts of the monetary authorities to ease monetary policy. I think related to the slowdown of growth, it's also a risk that we may see higher non-performing loans so that will also make things more difficult for financial authorities. Longer term, I think the biggest risk is that some of the short-term concerns may lead to reform measures being delayed and that could have a negative impact on the longer-term growth prospects.

Uchida: What are the overseas challenges?

Morgan: The tightening move by the US Fed and further moves expected this year are going to put greater pressure on capital outflows from China and other emerging economies, so that will certainly be a challenge for the currency authorities. Also, the decline in oil prices, although beneficial for consumers, could have negative impacts on the oil- producing countries and that could also have a negative impact on Chinese exports.

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