Wednesday, October 27, 2021

China’s economy is still struggling to escape its past

Written by By Matthew Comerford, CNN

China’s economy faces strong headwinds. The country’s financial sector has been under extreme stress as the Fed raises rates and fiscal stimulus fades. At the same time, fiscal adjustments in China are grinding and the impact of global trade tensions have unnerved markets, which have suffered the worst sell-off in years in recent weeks.

Meanwhile, the possibility of rising borrowing costs and capital outflows in the next 12 months has also reignited fears that the Chinese economy might not be able to absorb inflation.

Despite all this, the Chinese economy looks set to grow at between 6.5% and 7% this year.

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While China’s authorities would prefer growth to be higher, and the increase in revenues from this would allow them to invest and sustain the economy, this isn’t looking likely to happen.

Building to survive

Behind the fast growth of Chinese economic output lies a process of adaptation that was well under way already.

China has seen its property market and industry struggle through the turbulent years before the global financial crisis, and this has affected consumption.

No serious domestic initiative was able to halt the decline in disposable income; some cities are now seeing shopping malls entirely filled with children’s clothes.

Still, this isn’t stopping Chinese authorities from drawing on the country’s century-old tradition of rapid investment-driven economic growth and embracing it as a strategic strategy in order to build an economy strong enough to withstand shocks to the international economy.

Estate agents and real estate salespeople stand near the Shanghai Skyline, which spans Shanghai’s new suburban districts. AFP/Getty Images

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With an emphasis on innovation and technological development, the pace of change in China’s economy is picking up — and this plays out in its technology investments.

In the first quarter of 2019, exports of primary and downstream electronics products increased by a massive 16.14% to reach a total of $81.7 billion.

Meanwhile, the country’s manufacturing sector is still being built up. Over the last month, shares in Huawei, the Chinese telecoms equipment manufacturer, have fallen by more than 7% on fears that the Chinese government may be planning to act against the company.

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After years of building up this economy through investments in infrastructure, the country’s leading investors are now turning their attentions to economic diversification.

Their focus now is not just on building up the economy but also on using the investments to secure China’s position as a leader in industry.

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‘Sinovation’ cement works in Qihu, Guizhou province. AFP/Getty Images

Tackling pollution will be key

China’s top leadership has repeatedly stressed its commitment to improving the country’s air and water quality and reducing its carbon emissions.

Although President Xi Jinping declared at the 19th Party Congress last November that achieving these targets will be “the central task of national development over the long run,” efforts at in-house reform are slow to bear fruit.

Over the next year, the Chinese government will need to show its efforts at different levels. Individual provinces need to make greater efforts to improve air quality, and city authorities need to manage the deterioration in water quality in order to better protect the health of residents.

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The objective is “solving the emissions problem, with an emphasis on eliminating heavy industry,” said Fu Xiangyao, vice environment minister, at the World Economic Forum in Tianjin on Friday.

Fu’s optimism is rooted in the knowledge that China’s environmental problems cannot be solved in isolation. The pollution that is choking cities and affecting their inhabitants is inextricably linked to the economic distortions and corruption that are also responsible for causing this.

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