Details of the Slowing Down of the Chinese Economy
Chinese economy is at the hub and spoke of the world and plays a very crucial role in determining the world economic scenario. The country being the second largest economy in the world is determinant of the world economic progress. The indicators are all at alarming levels and alerts swamping over the media with the rhetoric “forget-about-Greece-China-is-the-real-threat” The country is at a crucial stage wherein the value of its currency is depreciating and it is difficult to predict how it is going to affect the economy of countries around the world.
The most populated country in the world with 15 out of the top 20 cities in terms of economic strength China has been at the apex of its performance for quite some time now. Why is there a speculation that the country is going towards a declining state? What are the factors that have raised alarming levels of hue and cry in the markets?
China is speculated to be at crossroads- on one hand it has to support its economy by the old methods it has been following lately and also see to the growth trajectory that it wishes for the country to accomplish. Amid this confusion it is really important that speculators get their objective view points across and as different people have different perspectives the policy changes can seem to point out in different directions for each.
Renminbi, the currency of China has an exchange rate RMB exchange rate and the moves over mid-point determination of this exchange rate by the People’s Bank of China has led to the sharpest decline of the currency’s value in almost two decades.
Some speculate that the currency was devalued to boost its exports. However as manufacturing is the base for China’s GDP and there is a reduced demand in the world, exports have suffered. Almost 59% of China’s GDP which caters to this segment got hit.
Again the housing sector which is another of China’s backbone strength contributing almost 25% to 30% has taken a hit and the prices of real estate have plunged down. This affects a multitude of industries around the housing sector such as cement, steel glass, furniture and many appliances as well.
The sectors around the steel sector such as automobiles, construction sector etc. have been affected and this has reduced the demand for steel. This has in turn affected China’s economy as China is the largest producer of steel. So, mostly due to overproduction and reduction in demand the country has been badly affected. The upscale growth the country has maintained over a period of time has to be matched with manufacturing and services.