“Is it Time to Sound the Alarm about the Chinese Economy? Business Insider Explores”

Investing.com – Concerns about China’s economy have been rising in the market lately, as high expectations for a sustainable recovery of the country’s businesses from the pandemic do not appear to be justified. But there is another opinion: we need to look at this country in the long term, writes Business Insider.

After China eased pandemic restrictions, its GDP growth was 2.9% in the fourth quarter of last year, and already 4.5% in the first quarter of this year. However, the data showed a slowdown in retail sales growth, as well as a drop in home sales, industrial production and fixed investment, which did not please the hopeful investors, and led Wall Street to cut its estimates of China’s economic growth for the full year.

In May, for the first time this year, it fell below the psychologically important level of 7 per $1. The price of , which was once predicted to rise significantly due to strong demand from Chinese factories, hit a 4-month low in mid-May, while luxury brand shares, which had been counting on strong consumer demand in China, made a sharp peak and fell due to stagnation. The index also fell this week. At the end of April, the Shenzhen and Shanghai stock indices lost $519 billion in just one week.

All this even gave Wall Street analysts a reason to talk about the fact that the recovery in economic activity in China was nothing more than a farce.

But looking the other way, we note that growing pessimism about the Chinese economy may be due more to unrealistically high expectations and Wall Street’s tendency to prioritize the immediate picture over looking beyond the horizon.

The reason for such high expectations from China lies in the country’s reaction to the financial crisis of 2008: then the economy received massive stimulus and achieved double-digit growth. It has had to work on a solution to the debt crisis for at least a decade, and although demand in the country is slowing, limiting debt growth may have a much higher priority for party leaders.

A realistic 5% GDP growth target was set in March that is seen by many as achievable, and while China may not provide particularly large incentives to achieve this goal, it has a number of tools to ensure the desired growth of the economy.

In addition, China can increase the availability of cheap loans to needy sectors and increase the credit quota for the three main banks, allowing them to invest in local projects. The People’s Bank of China could ease financial conditions, for example by lowering the reserve requirement for banks.

At the same time, the problem of unemployment, especially among young people, and a high geopolitical risk that deprives the country of access to foreign technologies remain unresolved. Not all foreign investors are ready to invest in the Chinese economy due to the country’s strict business regulations and extensive government intervention.

— Materials from Business Insider were used in the preparation

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