In December 2017, the Chinese government congregated for a three-day economic work meeting. At the top leadership decided China will follow a “high quality” growth model with more focus on fairness and development.
China is the second largest economy in the world after the USA. According to certain forecasts, its GDP growth is slated to overtake America’s GDP in another 10 years. A hub for the manufacturing industry, China is the fastest growing economy. Its economic growth has been over 10% for over 30 years.
However, in the recent years, China’s exponential growth has come at the cost of increased debt. According to statistics, its debt is more than 250% of the GDP and is much higher than the US. It is, however, lower than Japan, which remains the world’s most indebted leading economy. Experts have said that if China’s trajectory continues, then it will be looking at an economic slump sooner than later.
The International Monetary Fund endorsed China's Yuan as a reserve currency two years ago -- putting it in an elite club that includes the U.S. dollar and British pound.
Market watchers have long been concerned about the nation's debt-fueled growth, industrial overcapacity and capital outflows that could possibly spur a global economic crisis. "[I]t remains unclear whether the increased centralization of authority will result in an acceleration of the pace of reform or a continuation of the gradual implementation of economic liberalization, which balances other policy objectives such as maintaining relatively strong growth and the strong role of state-owned enterprises observed in recent years," said Michael Taylor, Moody's chief credit officer for Asia Pacific, according to a release.
In December 2017, the Chinese government congregated for a three-day economic work meeting. At the top leadership decided China will follow a “high quality” growth model with more focus on fairness, the environment, and a joyful life. In addition, the leadership under Xi has decided that speed of growth is no longer an overriding concern as China now pursues development instead. On Wednesday, the leadership vowed to push ahead with a clean-up of the financial sector. “We will promote a benign cycle from the financial sector to the real economy, to the property sector, and within the financial system, and firmly crack down on financial irregularities,” the statement said.
Hao Hong, chief strategist of Bocom International, said Beijing had acknowledged there would be some trade-offs in terms of policy objectives. “[The government] has paid less attention to investment starting from this year. While infrastructure construction has largely offset the decline in property investment, the contribution of consumption to GDP growth has been rising,” he said.
Iris Pang, chief Greater China economist at ING, said Beijing’s push to rein in excessive credit and control debt was “a double-edged sword” that could affect economic performance. “A slight move in the financial system – such as a bank credit control or an interbank liquidity squeeze – may affect the whole situation … and that deserves special attention from the regulators,” she said.
“Unlike his predecessors, Xi is willing to compromise and more determined to push forward this work [by tolerating slower GDP growth],” said Ding Shuang, chief Greater China economist at Standard Chartered Bank in Hong Kong.
There are at least 43 million people living in absolute poverty on the mainland
Our assessment is that the Chinese government has recognized the reality that even as the economy grows, if the crippling debt rises along with it, then there will be a financial downturn. Experts have often connected economic slowdown to rise in criminal activity and there are indications that the breakneck speed of China’s growth in the past decade is slowing down. This is maybe why China is currently building one of the world’s most expansive facial recognition systems. Perhaps the government is preparing for the increase in crime rate.