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Growth: China's economy is growing more slowly than it has been for 27 years

2019-10-18T08:16:31.962Z

Trade Conflict and Over-indebtedness: China's GDP grew by only six percent in the third quarter. This also affects the German economy.



The Chinese economy has grown at a slower pace in the third quarter than it has in nearly three decades. According to official figures, the gross domestic product (GDP) of the People's Republic increased by 6.0 percent between July and September, the lowest increase in 27 years. China's economy has been weakened above all by the trade conflict with the US and weakening domestic demand.

Slower growth in the United States and China as a result of the trade war between the two largest economies is also slowing down the global economy, thereby worsening the prospects for Germany. The International Monetary Fund (IMF) cut its global growth forecast this week for the fourth year in a row to 3 percent this week, down from 3.2 percent in July. On the other hand, the federal government is sticking to its prediction of 0.5 percent growth this year, but lowered the forecast for 2020 by 0.5 points to 1.0 percent on Thursday.

China is Germany's largest trading partner. German companies are also suffering from weaker growth. "The trade dispute triggers above all uncertainty, which is reflected in the restraint of private companies in investments," said Max Zenglein of the Berlin China Institute Merics. "High-drop exports to the US in the third quarter helped shrink China's overall exports." The trade conflict and the associated decoupling with the US will increasingly affect the Chinese economy.

"The economic upturn weakens with every stimulus package, and its impact decreases every year." Liu Shengjun, vice president of China Europe International Business School (CEIBS) in Beijing

Despite a partial agreement in the trade talks, the danger is not over. The two sides want to sign an agreement in Santiago de Chile until the meeting between US President Donald Trump and China's party leader Xi Jinping at the Asia-Pacific Summit (Apec) in mid-November. But there are still many ambiguities - especially the amount of China's agricultural imports from the USA. China is also demanding not only a suspension of announced new US import tariffs, but the abolition of existing special charges.

"Almost all growth drivers are pointing downwards"

In addition to the trade conflict, Merics expert Zenglein sees "predominantly internal Chinese reasons" for the slowdown in growth in China. He referred above all to Beijing's ongoing efforts since 2017 to curb credit growth and over-indebtedness. "The trade conflict with the US is only gradually starting to show in the figures, such as in exports or investment in manufacturing," he said.

"Almost all growth drivers are pointing down," said Liu Shengjun, vice president of China Europe International Business School (CEIBS) in Beijing. "In addition to investment and exports, consumption is also slowing down". The government is not taking big stimulus measures because they have created new problems such as over-indebtedness and bubbles. Also, the effect fizzles faster and faster, said Liu Shengjun. "The economic recovery weakens with each stimulus package, the effect decreases with each year".

The Chinese economy is heavily dependent on loans. But an expansion of the loans increase the risk through the debt, which is already "very high" in the companies anyway. China's total debt has reached 305 percent of economic output. "How to repay the debts in the future is still a big question," Liu Shengjun said. "That's why I think the debt problem is truly a hurdle."

Source: zeit

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