Chinese growth slowdown threatens global growth

China's GDP rose 6.6% in 2018, the lowest percentage in twenty-eight years. This controversial figure is in line with the government's goal. China now accounts for a third of global growth.

The sky is covered in the east. The latest figures released by the Chinese Bureau of Statistics confirm that Chinese growth is slowing. In 2018 GDP growth is 6.6%, just above the target of the government (6.5%), but at the lowest level since 1990. The last peak in the Chinese growth in 2007, when it rose to 14%. It has become less and less ever since.

The figure for 2018 was long-awaited, because China now plays an essential role as the engine of the economy. It accounts for one-third of global growth, more than the United States, accounting for a fifth.

The trade surplus from China to the United States is the highest

This Chinese slowdown is accompanied by other negative signals: the Chinese car market fell by 5% in 2018. A first in twenty-eight years. And the number of Chinese tourists traveling abroad stagnated in the second half of 2018.

Bad directions

These poor indicators are all the more worrying because many economists believe the real growth rate may be lower: "We see that electricity consumption is steadily declining in the large industrialized districts, a clear sign of slowdown, in fact real Chinese growth should be between 3 and 4%, said Christopher Dembik, economist at Saxo Bank. In mid-December, Xiang Songzuo, professor of economics at the University of Beijing, even mentioned a real growth of 1.67% in 2018 …

To remove the doubt that weighs on Chinese statistics, economists study other indicators. "We note the use of cement, transport, freight or the credit level, tells Cynthia Kalasopatan of the Rexecode Institute. These studies do not show a significant difference with official statistics. "

End of an era?

Whatever the actual extent of the braking, no one doubts it, at least that it takes place. Is this the end of an era? "It's usually a soft landing, especially because the services sector remains well-oriented, but it weighs for 60% of GDP"says Cynthia Kalasopatan, according to which China is coming closer to the developed country model.

"The question is, how is China going to a" normal "level of growth? Or the Chinese authorities will be able to propel the economy smoothly, otherwise it will be necessary to go through a crisis, to reduce overcapacity?"says Julien Marcilly, chief economist of credit insurer Coface.

Although delays are expected, observers are concerned that the current delay is changing in nature. "Previously, this was linked to the overcapacity of large state-owned companies, especially in the infrastructure sector, explains Marcilly. But since mid-2018, other sectors have been affected, such as the car. This shows that the middle class, more equipped and more guilty than before, has less appetite and that private companies, including SMEs, are more reluctant to invest. "

Prevent a real breakdown

Concerned to avoid a real breakdown, the Chinese state continuously seeks to keep the activity as close as possible to its growth target, which is between 6 and 6.5% before 2019. Without waiting, it has just announced new incentives : the VAT rate for small and medium-sized enterprises has been reduced.

Birth rate collapses in aging China

In addition, the Chinese government has decided in recent weeks to reduce the reserve requirements of banks. At the same time, it will encourage regional governors to launch bonds to finance infrastructure expenditures. And banks can subscribe en masse.

With these kinds of interventions the Chinese state takes the risk of further increasing an already enormous private debt. If a banking institution were in trouble, this could cause a knock-on effect that could be communicated to the entire Chinese economy. And so global.

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The Chinese strategy for 2025

In 2015 Prime Minister Li Keqiang presented the plan "Made in China 2025", which aims to make China "Global market leader", competitor of the United States.

Goal. "Building an internationally competitive manufacturing sector is the only way for China to strengthen its power, protect the security of its state and become a global power."

The levers. The Chinese government wants the industry to focus on products with higher added value in key sectors such as pharmaceuticals, cars, aerospace, semiconductors and robotics.

The means. To reach this level, China is investing 300 billion dollars in investments, or 264 billion euros, over a ten-year period.

Alain Guillemoles and Michel Waintrop