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China needs to arrest slowing economic growth, and it has the means to do so
- The prospect of slower Chinese growth is gaining widespread acceptance, but this trend is dangerous
- For the sake of China and a global economy primed for recession, Beijing must halt the decline in GDP growth and implement a powerful stimulus package
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Why you can trust SCMP
China’s GDP growth may still be strong by global standards, but the annualised rate of 6 per cent in the third quarter of 2019 is the lowest the country has recorded since 1992. In fact, China’s GDP growth has been slowing steadily since the first quarter of 2010, when it exceeded 12 per cent, year on year. This downward trend is riskier than many observers seem to realise.
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In recent years, the prospect of slower Chinese growth has gained widespread acceptance, both within and outside China. A shrinking working-age population means that 8 per cent growth is no longer essential for full employment, it is argued, so introducing more fiscal or monetary stimulus isn’t worth the risk.
Instead, China’s policymakers should focus on improving the quality of growth through supply-side structural reforms – an objective that, most economists in China argue, may in fact be easier to achieve in a lower-growth environment.
This approach is misguided. While structural adjustment is crucial, slower economic growth is not a prerequisite for success; on the contrary, it would impede reform. Moreover, given that the complexity of China’s labour market impedes data collection, it is likely that the employment situation is not as strong as many believe.
In this context, the Chinese government’s top priority should be to arrest the decline in GDP growth – not least to prevent a kind of snowball effect that will make restoring growth far more difficult later. After nearly a decade of continuous deceleration, with no end in sight, investors and consumers are becoming increasingly reluctant to spend.
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Serious financial vulnerabilities will only deepen their concerns; others things being equal, declining growth will worsen all indicators of financial stability.
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