By: Azhar Azam
Either it is 2015’s Black Mondays, rising net capital flows, décolleté exports, falling investments, declining reserves or the yuan contraction; China has not only subjugated all the economic challenges but also is no way near to collapse; much to the dislike of some imaginations.
There is no doubt that Chinese economic growth has slowed in the past few years but it is still growing at a reasonable pace underlying the size of the economy. Moreover, China is facing a few challenges like rural-to-urban influx, higher wages and employees’ expectation of raised life style so you should expect a large economy to slice it growth rate as far as its people grows.
China posted a growth rate of 6.7% for 2016 increasing its GDP to 74.4 trillion yuan ($10.8 trillion); enlarging its all-time high 33.2% contribution in global economic growth. From 2012 to 2016, China contribution to global economic averaged over 31%. In the first quarter of 2017, its real GDP growth marked 6.9%; an uptick from last year growth rate and higher than the expectations.
China’ foreign trade flashed a surplus of $510 billion in 2016 despite exports (7.7%) fell more than the imports (5.5%) for the year. Machinery, garments, and footwear were among the major areas declined in exports before getting back on growing tracks for January to April 2017.
Overseas Direct Investment (ODI) in China rose by 16.7%; to $170.1 billion in 2016 excluding financial investments from 164 countries and regions. Fixed assets investment in China, one of the key driving forces of the economy, also grew by 8.1% in 2016 and 8.9 in January to April 2017.
Only in 2016, China pulled out another 12.4 million (22.2%) people out of extreme poverty; the number of people living below poverty line of 2,300 yuan ($335) dropped to 43.4 million in 2016 from 122.4 million in 2011. Overall, it lifted 800 million people out of poverty and met all the millennium development goals (MDGs) by 2015; according to country preview by The World Bank.
It also created nearly 13.2 million urban jobs in the country during the year; reducing urban unemployment growth rate to 4.0% besides succeeding to maintain the fiscal deficit to the targeted 2.2 trillion yuan.
China’s foreign exchange reserves are also regaining the momentum as they rose for fourth consecutive month in a row – to $3.05 trillion in May as “a pause in the dollar’s rally” slackened the capital outflows. It FX reserves although one time has been in excess of $4 trillion but depleted over a period of time by 25% over yuan vulnerability, stock market crash and global economic crunch.
Yuan depreciation in the past couple of years has jolted the world economy; what is termed as “currency manipulation” by China to make it exports less expensive and to slash imports to secure domestic manufacturing jobs. But China has spent hundreds of billion to stabilize yuan and shore up the stock market.
Chinese devaluation strategy was said to be aimed at making exports less expensive and to slash imports to secure the jobs of workers. This could have a ripple effect on the countries like United States as their economies are intertwined so the U.S. would be exporting less to China, raise dependence on Chinese rather than Americans goods so trade gap would widen.
Consequently China, by devaluating yuan, is exporting its unemployment problem to other countries. United States fells one of its major victims as “currency manipulation” has eliminated 2.3 to 5.8 million US jobs in the past decade, according to an estimate by Business Insider.
At the same time, while trillions of words were being inked or spoken worldwide over deliberate yuan twiddling by China, some other notable currencies devalued too and even terribly. Where Chinese Yuan depreciated 8.8% in the last three years – British Pound (24.1%), Canadian Dollar (19.1%), and Euro (17.9%) have deteriorated more than the yuan. But we all were sensationalized toward all the fuss about yuan only.
China’s mounting debt (over 250% of the GDP) is another mulled area to forcibly declare it bankrupt soon but many other strong economies facing the same financial threat are somehow discounted; including Japan (392%), United States (251%), and United Kingdom (266%). The shallow analysis also always fails to account for the high-valued assets owned by the Chinese institutions.
Actual total debt owed by China’s local and central governments stood 27.3 trillion yuan (nearly $4.0 trillion) last year; about 36.7% of GDP, said Xiao Jie, Chinese Minister of Finance. “China’s government debt risks are generally within control.”
So the China’s economy is neither on the verge of collapse nor heading toward any kind of disaster as pretended by some of fiction journalists and motivated critics; instead seems as if it is taking a step back to stride way forward and Xi’s ambitious OBOR initiative is materializing fast to make some trances more grim.