China’s economy is everybody’s problem. The two highest purchasing powers in the world, the United States and the European Union, both depend on China’s highly lucrative manufacturing industry to fuel many business endeavors. The relative size of China’s economy and population makes it a force of nature in global economic networks. If China experiences a slowdown, it has a ripple effect across the entire globe that must be dealt with. Ironically, the explosive growth that grew China to this level of economic importance might be the very thing that causes it to slow down, and put the entire global economy into question. Here’s some information on China’s growth problem...
China has enjoyed immense growth
China’s growth over the past 30 years has been incredible and unprecedented. They were the world’s fastest growing country until 2015. The average GDP growth was around 10%. This was due to the large population taking a jump from a more egalitarian society to one that is built around industrial infrastructure. This led to huge gains in manufacturing and exports, which made China a very important player in the import-export global economy. Many countries now depend on China for manufacturing purposes.
China needs excessive growth
While it is highly unlikely that China will be suffering any GDP contractions anytime soon, the inherent problem with China’s size and economy is that it needs a tremendous amount of growth to continue to improve the quality of life for its enormous population. The problem was that, in order to increase the industrial growth and improve the lives of its citizens, the country would need to continue at a growth rate of around 8%. This has proven to be difficult. Ultimately, the target for 2016 looked to be 6.5% growth. However, it looks as though China may underperform and only achieve 6.3%
Currency weakening will slow GDP growth
The largest threat to China’s continuing growth is likely due to the volatility and instability that their currency is enduring. If inflation causes the Yuan to drop in value, it will be hard for Chinese industries to contribute enough capital outflow to get the country growing at the rate it needs to be to endure this current possible slowdown. This is especially true in the current industrial situation, where there are relatively high levels of corporate debt across China. If China is able to gain control of its currency’s valuation, it might have a chance of getting its growth back on the track that it needs to be.