China’s economy is slowing rapidly due to fears of a global recession. The second quarter expansion of 0.4 percent is the weakest performance since the initial coronavirus outbreak in Wuhan. The world may soon be on the verge of a global recession.
China’s economy
(1)Minor expansion: China’s economy grew at the slowest pace since the start of the COVID-19 pandemic in the second quarter. Its economy grew just 0.4 percent year over year between April and June.
(2)Low consumer spending: Lockdown across the country has reduced industrial production below market expectations resulting in consumer spending.
(3) China’s non-manufacturing PMI, which tracks the construction and services sectors, declined to 53.8 from 54.7 in the previous month, indicating slower growth in those parts of the economy.
China is losing its edge: 60% of companies and 82% of manufacturers now report that their production has slowed during the current outbreak due to staff shortages, inability to obtain supplies, or apparent factory halts as a result of lockdowns.
(4) Impact of Russia-Ukraine conflict: China is an export-driven economy, so the disruption in the supply chain due to the Russo-Ukraine war has added to its challenges.
(5) The turmoil in Chinese markets has sparked debate among some economists over the possibility of a “balance sheet recession”.
(6) Zero tolerance policy towards Kovid: China has closed major industrial cities, which has hindered industrial development.
What is a Balance Sheet Recession?
It is used to describe a situation in which home and business assets fall in value. This severely damages their balance sheets, forcing them to save more and invest less while consuming, leading to economic contraction.
Economists argue that recovering from a balance sheet slowdown is particularly difficult. In these events, monetary policy becomes largely ineffective, as those with uncertain balance sheets refuse to borrow money, no matter how low interest rates are.
Signs of the global economy looking gloomy-
In an update to the World Economic Outlook, the World Economic Outlook said economic prospects have turned dark in recent months. %, which was 6.1% last year. “Inflation” is also rising more rapidly and more broadly than the The International Monetary Fund (IMF) did earlier this year. It now expects, “prices to rise 6.60% in rich countries and 9.52% in emerging” markets and developing economies.
Fear of falling into China’s recession
The International Monetary Fund recently cut its China’s GDP growth forecast for 2022 to 4.4%, well short of the government’s target of around 5.5%. According to the Ministry of Culture and Tourism, last year’s Tourist spending decreased by 43% compared to the same period. The services sector of China’s economy fell to 36.2 in April (below 50 indicates contraction). The impact is substantial, as the services sector accounts for more than half of China’s GDP and over 40% of the country’s employment.
Signs of hope for China
There is a high cost of exiting the Chinese market. There is a high cost associated with businesses leaving their Russian operations, such as the $5 billion reported by Shell. Taking a step back from China would probably cost a lot, given how deeply integrated China is in the world’s supply chains and as a consumer market. So, the answer is no in the affirmative. Major companies continue to invest: US and European business investment in China has steadily increased over the past decade, even during the height of President Trump’s trade war with China.
