Chinese authorities have given a boost to the stock markets of the world on Friday by announcing a drop in interest rates. It is hoped that this measure of monetary accommodation will boost economic activity, not only in China, but around the world.
One cannot help but wonder whether this optimism is justified. Many people, including experts and strategists, still stipulate on the supposed Chinese miracle. However, the Chinese economy continues to slow.
In the third quarter of 2014, China’s gross domestic product grew by 7.3%, the lowest growth in five years. It is also below expectations of the Chinese government aimed 7.5%. For an economy that had accustomed us to grow at a rate of over 10% for many years, it’s disappointing. Indeed, from 1998 to 2008, economic growth has been 10% per year on average.
This is not to mention that Chinese statistics are still famous for their lack of rigor, many economists focusing especially on the relative direction than absolute data.
This weakness certainly explains the attempt of Chinese monetary stimulus. But this is not the first measure focused to boost economic growth. For several months, the Chinese authorities have stepped up efforts in this direction, including increasing investment in many sectors of the economy and facilitating credit to farmers and private companies.
So far, the impact is mixed.
Basically, there are no major changes in China. Its economy is still focused on the massive capital investments made for the only reason to inflate the statistics, without any concern for performance. Millions of buildings are still unoccupied. Overcapacity of the Chinese factories is also disconcerting.
Moreover, China remains heavily in debt with a debt ratio to GDP approaching 200%. Despite slower growth, the debt has continued to increase. Finally, corruption is rife.
In 2011, it looked like the Chinese economy was on steroids. It is still true, but doping has less and less effect as the time goes. Experts fear that the Chinese economy will disappoint many observers in the coming years.