China’s National Bureau of Statistics (NBS) announced that the country’s annual GDP growth decreased to 3%, much below the declared objective of 5.5% in 2022, and that its economic slowdown may have global repercussions, according to Financial Post.
Vice-premier of the People’s Republic of China Liu He, who spoke at the World Economic Forum in Davos in 2023, effectively outlined the issues and difficulties that China and the world economy are currently confronting.
“Over the past five years, we have experienced all kinds of unexpected events, and witnessed profound changes in the world’s political and economic landscape. Therefore, the theme of this year’s Annual Meeting, ‘Cooperation in a Fragmented World’, cannot be more relevant,” He said.
“The Covid-19 pandemic punctured China’s growth saga. China’s GDP growth was also slightly lower than forecasts published by the IMF in October 2022. IMF predictions expected a GDP growth rate of around 4.4 percent.USD 18 trillion in 2021 mainly due to a sharp rise of the dollar against RMB. This is the slowest growth of the Chinese economy since the 2.3 per cent registered in GDP in 1974,” reported Financial Post.
Observers were already talking about China falling into the middle-income trap and now, evidence has come to light that the country is finding it hard to keep its miracle of sustained higher growth rates anywhere closer to 10 per cent or more recorded during the late 1980s and the whole of 1990’s.
Kim Byung-yeon, author and a professor of economics and head of the Institute for Future Strategy at Seoul National University succinctly argued that “the Chinese economy is slipping into the middle-income-country trap.”
According to Kim, productivity that determines the long-term growth rate has sunken sharply in the case of China.
The downward trend has deepened since 2014. China’s fast growth over the past 15 years stemmed largely from the infrastructure investment to build factories, housing and roads – and less from structural reform and innovation. Extensive growth led by capital and labor input is not sustainable, reported Financial Post.
The sharp decline in the Chinese GDP growth in 2022 was blamed on a host of factors mainly China shutting itself from the outside world due to the ‘Zero Covid’ policy. The slow pace was blamed mainly on the strictly ‘Zero Covid’ policy, leading to periodic lockdowns and the ruling Communist Party’s crackdown on big industrial firms besides the lingering real estate crisis.
The most disturbing fact that comes out from the NBS data is that China, the so called ‘manufacturing hub’ of the world recorded a very feeble growth in industrial output at 3.6 per cent year-on-year in 2022 and even feebler at 1.3 per cent in the month of December. Zhu Hong, a senior NBS statistician, highlighted a rebound in COVID outbreaks and lackluster demand in November that curbed industrial production and placed increasing pressure on Chinese businesses.
According to him, the factors that weighed on slow industrial growth included a squeeze in profits both from anti-virus curbs in big manufacturing hubs such as Guangzhou and Zhengzhou, and from the persistent weight of a protracted property crisis and slowing exports, reported Financial Post.
NBS data in November 22 showed that profits fell for 21 of 41 major industrial sectors, with the ferrous metals smelting and pressing industry suffering the steepest decline, at 94.5 per cent. That compares with a 92.7 per cent fall for the first 10 months.
The fact that many Chinese businesses are also subject to US and other Western penalties, particularly targeting Chinese IT firms that are allegedly infringing on data security and stealing patents, is another factor contributing to the industrial slowdown. When asked about the Chinese government’s artificial intelligence initiative at the WEF, FBI Director Christopher Wray stated that he was “deeply concerned” because it was “not constrained by the rule of law.”