Explained: Why China’s growth has slowed to a record lowhttps://indianexpress.com/article/explained/why-china-economy-growth-has-slowed-to-a-record-low-6076095/

Explained: Why China’s growth has slowed to a record low

China's growth statistics have been seen with suspicion for a long time. Many analysts tend to knock off 2 to 3 percentage points from the official growth statistics. So, in reality, China's slowdown may be far more exaggerated than what it appears to be.

China’s growth statistics have been seen with suspicion for a long time. As such, its slowdown may be far more exaggerated than what it appears to be.

According to China’s National Bureau of Statistics, the Chinese economy grew by just 6 per cent in the third quarter of the current calendar year – making this the slowest growing quarter since 1992 when the current measure of gross domestic product was first adopted.

The deceleration in China, which is the world’s second-largest economy after the United States, is not just a cause of worry for the Chinese but also for the global economic momentum that is driven heavily by economic activity in some of the biggest economies like the US, China and the Eurozone countries.

Why is China slowing down?

China’s growth crashed from the highs of 15 per cent annual growth in the wake of the global financial crisis of 2008-09. While China recovered quickly and got back to double-digit growths in 2010-11 but since then it has been slowing down steadily.

There are several reasons why pegging back China and that also explains why it has not been able to turn things around. For one, China’s fastest growth phase was during a phase when it was led by exports growth. But in the wake of the global financial crisis, domestic consumption was seen to be a more robust way of sustaining growth.

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On the domestic consumption side, China’s one-child policy had placed structural constraints and this was one of the reasons why that policy was given up a few years ago. More recently, domestic consumption has been adversely by rising inflation cutting into people’s incomes as well as the outbreak of swine fever. Demand has also been affected by the growth deceleration that has happened as a result of the trade war with the US and the consequent uncertainties.

But isn’t 6 per cent good enough?

It depends on what variable one looks at. China is the world’s second-largest economy with a GDP of $10.8 trillion – four-times India’s GDP. So from that standpoint, even a 6% annual GDP growth adds $0.65 trillion to the economy. But, China also has the highest population in the world and that makes its GDP per capita $16,100 – far below the $55,600-mark of the US. Moreover, while even Chinese authorities expect its economy to slow down, the deceleration is faster than anticipated.

Lastly, China’s growth statistics have been seen with suspicion for a long time. Many analysts tend to knock off 2 to 3 percentage points from the official growth statistics. So, in reality, China’s slowdown may be far more exaggerated than what it appears to be.