The Chinese economy seems to have exhausted its growth potential the way it is now. With that being said, Beijing now has to fight the existing lending bubble as well as the country’s dependence on investments.
The Royal Bank of Scotland thinks the same way. The experts say that while China used to be expected to see a hard landing, the current basic scenario is an even harder landing for the Chinese economy. They highlight 4 major structural problems dragging the Chinese economy into a deep recession and affecting international trade and economic relations. Nothing fancy if to consider the fact that China is the world’s second-biggest economy.
Are Chinese GDP Figures Real?
The RBS experts draw our attention to the fact that over the last 4 years, the GDP growth has miraculously come close to the target set by the Chinese government. This leads us to believe that the actual GDP figures are far from matching or coming close to the target and that the official figures are actually artificial. The experts assume that the actual Chinese GDP growth is only half the size of the official data or just 3-4% a year.
This kind of a slowdown is felt across the Chinese economy in general and the industrial production in particular. These days, the demand for industrial products in China and abroad is going down, which results in an increase in spare production capacities. Indeed, the production capacities used across China have been declining over the last 5 years or so – from 90% in 2011 all the way down to 75% by the end of 2015. This urges the authorities to cut down on those spare production capacities, especially in the steel industry, while promising unemployment benefits to those who are going to lose their jobs.
All in all, this reaction to the situation shown by the Chinese authorities can be treated as major proof of a systemic crisis in the Chinese economy. While the latest stock market crash in China cannot tell us a lot about the entire national economy of China, the authorities’ reaction actually can. Over the last few months, the Chinese government has been static, passive and highly uncoordinated when it comes to resolving the existing economic challenges. This means that there is no unity in the government over the issues. They are at odds over whether to let the market regulate the pricing or to focus on backing the necessary social stability…
