Storm clouds gather over china’s economy as growth slows | thearticle

In 2019, China posted its lowest growth rate in nearly 20 years and its birth data fell to a record low. On January 17, the National Bureau of Statistics (NBS) announced 2019 gross domestic

product (GDP) of 99.09 trillion yuan, up 6.1 per cent over the year before and the lowest growth since 1990. Per capita GDP was US$10,276, exceeding US$10,000 for the first time. The

population reached 1.4 billion at the end of last year, with the 2019 birth rate falling to a record low of 1.048 per cent. There were 30 million more men than women — 715 million to 685

million. The percentage of people aged over 60 years climbed to a record 18.1 per cent, 254 million. These figures show good and bad news. “China remains the fastest-growing major economy in

the world and the largest contributor to global economic growth, contributing about one third of annual world growth,” said the official _China Daily_ in an editorial. “After an annual

average rate of nearly 10 per cent for about 40 years, it is only natural that it should be slowing.” The official media called the 6.1 per cent “hard-earned” in view of the Sino-US trade

war and a slowdown in global growth. But many dark shadows hang over China’s economy. The NBS warned of risks involving “structural, systemic and cyclical problems” at home. One of the

biggest is debt, especially that held by local governments and private companies. It has grown during the 11 years since the global financial crisis of 2008; central and provincial

governments have pumped billions of yuan into property and infrastructure projects to stimulate the economy and meet Beijing-set growth targets. The future of any Communist Party official

depends on meeting — or, better, surpassing — these targets. China’s ratio of non-financial sector debt to GDP has surged 115 percentage points in the past decade. In 2019, a record number

of Chinese firms defaulted on bonds to local and foreign investors, including high-profile companies. According to data compiled by Bloomberg, onshore corporate defaults in the final weeks

of 2019 reached 130 billion yuan, breaking the record of 122 billion yuan in 2018. Shandong Ruyi, which owns British clothing maker Aquascutum and Saville Row tailor Gieves & Hawkes,

narrowly averted a default on a US$345 million US dollar bond due last December. Last week, the Ministry of Transport said that the average one kilometre of toll road in China carried a debt

of 33.86 million yuan. These roads were built on the presumption that the tolls paid to use them would be enough to pay back the initial investment, the maintenance and the wages of those

who work on them. Another dark shadow is unemployment. At the end of 2019, the official figure reached 5.2 per cent, up from 4.9 per cent a year earlier. The actual figure is much higher,

especially of migrant workers who have lost their jobs but are not registered in the city where they work. Thousands of manufacturing jobs are leaving China for countries with cheaper labour

costs, like Vietnam, Thailand, Indonesia and Bangladesh. To reduce costs, Chinese firms are investing heavily in automation, robots and artificial intelligence — cutting the need for

labour. One reason to relocate manufacturing is the tariffs imposed by the US, China’s biggest export market. The conflict with America has widened from a trade war into a Cold War, with the

two countries fighting over currency, science and technology, and cyberspace. The trade agreement the two signed last week in Washington was only a truce — it leaves in place tariffs on

US$360 billion worth of goods. This conflict will intensify with the next US president, whether Democrat or Republican. There is a consensus among the American military, political and

diplomatic elite that China is the most dangerous strategic competitor and the two economies should be “decoupled” as much as possible. President Donald Trump’s next step may be to ban

Chinese firms from listing on US financial markets. Niall Ferguson, a senior fellow at the Hoover Institution at Stanford University, said that, because of intractable social divisions at

home, the US needed an external enemy. “After World War Two, it was the Soviet Union; then it was Islamic fundamentalism; and now it is China. Such an external enemy also suits the

nationalist agenda of President Xi Jinping. I see a long-term Cold War on several fronts, but not a hot war. China is militarily too far behind the US. China’s economic growth could fall to

as low at three per cent a year.” Such a negative outlook is pushing many Chinese as well as foreign companies, to set up factories in other countries. A common model is to have

manufacturing in both China and an alternative location. Few countries in the world can match the industrial and supply density of the Pearl River and Yangtze River deltas. A third shadow is

property. It has been one of the main recipients of the flood of investment since 2008. China is full of “ghost cities” — vast areas of skyscraper apartment buildings with few or no

residents. Major cities have office blocks with few or no tenants. Property is the favourite destination of Chinese investors. They are betting that, because so much of the state banking

sector is dependent on the property market, the government will never allow it to go bust or have a major downward correction. So far their bets have paid off. But a day of reckoning may

come and the central bank may judge the burden of bad loans to be too heavy. So, while the policymakers in Beijing have plenty to celebrate in 2019, the challenges they face this year are

more daunting than ever.