All Eyes are on China as Economy Struggles

Greek elections and Fed policy loom large over international markets, but the world awaits with anticipation as Chinese officials try to mitigate sluggish growth, according to Reuters. Analysts expect banking authorities to ease reserve requirements to invigorate lending throughout the nation. Overall, the government aims to achieve a growth rate of 7.0 percent for 2015.

Greek elections and Fed policy loom large over international markets, but the world awaits with anticipation as Chinese officials try to mitigate sluggish growth, according to Reuters. Analysts expect banking authorities to ease reserve requirements to invigorate lending throughout the nation. Overall, the government aims to achieve a growth rate of 7.0 percent for 2015.

Critics are calling out China’s projected growth target, believing such a projection to be an overly rosy assessment that is not steeped in reality. Experts point to troubling signs, such as the devaluing the yuan, cutting interest rates and purchasing stocks to inflate the market as reasons why China could not be embarking on such a moderate growth rate. Less optimistic analysts peg China’s growth at a tepid 5.0 to 6.0 percent, while others predict a grim estimate of 1.0 to 2.0 percent for the year. Some analysts even believe that China’s economic status is dire to the point of an impending collapse that could drag down the world economy. China’s exact growth rate is hard to determine, with some believing that China has long fudged the numbers to project economic might.

Regardless of the truth, perception is reality, as international stock markets plummet due to investor fears regarding China’s slowdown. Further, Chinese investors grow nervous, and the government fears a mass exodus of investment funds. With that being said, China’s problems say less about the Chinese and more about the world economy as a whole. For instance, commodity-based nations such as Australia and Brazil rely on high demand from places like China, but Chinese need for such items as copper and oil has declined, causing many economies that thrive on commodities to suffer. China’s downfall points to the failure of other governments to diversify and commence structural reforms that could lead to genuine growth. In China’s case, President Xi Jinping has embarked on an anti-corruption platform, and although some critics contend that Chinese corruption is a necessary evil that cuts through red tape and spurs more projects, the president believes that rooting out crooked bureaucrats will foster more development in the long-run while placing the nation on a stable growth trajectory.

From China’s perspective, the high surplus seen a couple decades ago could not last forever, and other analysts believe that China has entered a cooling phase. Also, many made the mistake of believing that China’s economy was invulnerable and immune from major economic contraction. Manufacturing capacity dropped to its lowest level since 2009, including an ever-weakening export sector. Major strongpoints that included steel and freight have seen drops as well. However, the declines may signal China’s fundamental transition from a manufacturing-centered economy to one based on consumption. Regardless of China’s situation, the international community placed too many eggs in one basket when it comes to Chinese growth, and the world economy is suffering as a result.