Slowdown in China is just beginning

China
File Reuters

UNITED STATES (VOP TODAY NEWS) — Slowing growth in China has just begun, but the long-term outlook for the world’s second largest economy looks favorable, said the head of PAG, Asia’s largest private investment company, Weijian Shan, reported by Fortune.

“I would not be surprised if GDP growth rates fall to 6% in 2019,” he said.

The Chinese government lowered its target for economic growth in 2019 to 6-6.5%, after last year GDP growth slowed to 6.6% and was minimal in 28 years.

Shan believes that two short-term forces contribute to slower growth. The first is a serious reduction in lending as a result of Beijing’s campaign to combat shadow banking, which served as the source of most loans to the private sector.

“Large banks do not want to lend to private companies because they are more risky borrowers,” says Shan. Since the private sector did not receive the necessary bank financing, this put downward pressure on economic growth.

The second negative factor is a trade dispute with the United States. “The direct impact on business is small,” Shan noted. “But the impact on business sentiment is great. This dispute undermines the confidence of Chinese manufacturers and keeps them from investing.”

As reported by Vesti.Economy , at the end of September, the United States imposed a 10% duty on Chinese goods worth $ 200 billion.

As a result, the total value of goods affected by duties increased to $ 250 billion. Beijing introduced a retaliatory duty on American goods worth $ 60 billion, increasing the total value of goods affected by duties to $ 110 billion

To help resolve the conflict, according to Shan, China should reduce its tariffs on imports from the United States and remove barriers to US ownership of Chinese companies.

“This will reduce prices for consumers on cars, cell phones and other imports from the US, and also make Chinese manufacturers become more competitive,” he explained. “Cheaper prices for these products will give consumers more money to spend on other goods. And this will help growth”.

As Shan notes, China’s transition from a production-oriented economy to a consumer-oriented economy will inevitably slow its future growth.

According to him, the economic fate of China is determined by its demographics. The one-child policy that has been in effect since the late 1970s has led to a shortage of workers in China, and there are 30 million fewer women than men in the aging population.

In 2016, China eased the family planning policy, allowing parents to have up to two children instead of one.

“China is now facing a shortage of workers, which increases labor costs,” said Shan. “Labor costs have grown by 11% per year over the last decade, while prices for exports produced in China remain unchanged or are falling.”

However, he added that China still has many opportunities to improve its growth profile by reducing the public sector and further encouraging the growth of the private sector. These sources of efficiency will be needed simply to maintain current growth rates.

In an effort to stimulate growth, Beijing is pushing banks to increase lending to private and small companies by at least 30% this year.

This article is written and prepared by our foreign editors writing for VOP from different countries around the world – edited and published by VOP staff in our newsroom.

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