Pressure Grows on China amid Weak Economic Forecast

According to analysts’ predictions, the Chinese economy may have grown seven percent in the first three months of 2015, the lowest expansion in six years. Trade and investment fell to levels not seen in years.

Many experts contend that Chinese policymakers should be worried, but officials do not necessarily see it this way. Even though the predicted seven-percent growth would be the worst performance for China since 2009, the figure is well within the government’s goal of fostering at least seven-percent growth for the year.

According to analysts’ predictions, the Chinese economy may have grown seven percent in the first three months of 2015, the lowest expansion in six years. Trade and investment fell to levels not seen in years.

Many experts contend that Chinese policymakers should be worried, but officials do not necessarily see it this way. Even though the predicted seven-percent growth would be the worst performance for China since 2009, the figure is well within the government’s goal of fostering at least seven-percent growth for the year.

Chinese authorities may be concerned if growth retracted to 6.8-perccent annual growth in the last few months, which is slightly lower than data from the fourth quarter. China’s annual growth in terms of fixed asset investment is 13.8 percent, a slight drop from 13.9 percent in February. Such stagnation marks the worst output for China since 2001.

However, the country’s soon-to-be released inflation report will truly gauge whether or not Chinese authorities will be concerned, including a drastic fall in consumer prices. Even a positive inflation report would not alleviate concerns of China’s perceived economic weakness.

China Suffers through Demand Crisis

The crux of China’s problem lies with a drop in domestic and foreign demand, including a price fall in such commodities as iron ire. The lack of growth also forced the state to halt infrastructure and construction projects. The government also aims to switch from an industrial-based economy to a service/consumer oriented one, but the domestic demand dip remains a barrier to such an endeavor. Despite a growing middle class, China still suffers from vast economic inequality, with many citizens unable to contribute to the economy on a consumer basis.

China Moves Ahead

The main concern for China is fighting deflation through such measures as lowering interest rates and banking reserves in the last few months. Kevin Lai, an analyst who predicts first-quarter growth of 7.1 percent, believes the Chinese need to do more much sooner to speed up growth. In the short-term, the central bank will continue to adjust interest rates accordingly, but many acknowledge that the central bank can do little in the way of creating far-reaching prosperity.

China’s Long-term Problems

One reason why China is losing foreign investment is competing markets in the region and around the world. For instance, Vietnam is a country where workers are willing to work for much less than Chinese workers, prompting some companies to move operations to Southeast Asia. Moreover, even though China’s has been fertile ground when it comes to foreign investment, the nation’s pollution problem is a turn-off to many potential investors. China aims to lower coal usage by using more clean energy sources, but reducing pollution is a goal that is going to take time.