The ups and downs of a slowdown in China

These figures are just the latest addition to an unmistakably downwards trend and yet the mood in Beijing is studiedly sanguine. Why so unconcerned?


China’s economic powerhouse is powering down. Quarterly growth of 7.5 per cent might set finance ministry pulses racing in much of the rest of the world. But this is a country where, until recently, it was axiomatic that anything below 8 per cent would lead to social unrest. Nor are the latest figures a one-off – they are merely the latest in an unmistakable downward trend.

Unlike so often in the past, though, the Chinese leadership shows little inclination to act. Indeed, the mood in Beijing is studiedly sanguine. Not only did the national statistics bureau describe yesterday’s figures as “within the reasonable range for the year”. Finance Minister Lou Jiwei even hinted, last week, that growth could drop well below 7 per cent over the coming months (although his remarks were later airbrushed into line with the official 7.5 per cent target by the state news agency).

Why so unconcerned? China’s slowing economic expansion may, in part, be due to falling demand in debt-stung trading partners such as Europe and the US. But it is also deliberate. The boom that has dragged hundreds of millions out of poverty has produced problems of its own; its focus on infrastructure-building leaving China over-indebted, over-reliant on exports, and weighed down by graft and disparities in wealth so extreme that the credibility of even so autocratic a regime as the Chinese Communist Party is under strain.

Although the need to set the economy on a more sustainable footing has been known for some time, China’s politicians always lost their nerve. Any sign of a slowdown – in 2008, say – prompted massive debt-funded stimulus. The inevitable cannot be delayed forever, however, and the new leadership, appointed last autumn, seems to know it.

President Xi Jinping’s so-called “four dishes and a soup” policy is a tilt at both graft and official excess more broadly. Funding for China’s usually lavish national games has also been slashed by nearly four-fifths. Most notably, the central bank curbed its lending last month, provoking a mini Chinese credit crunch. All suggest a government applying the brakes. Reforms that will boost consumer spending and allow the services sector to take up the slack are expected to follow.

With the Chinese economy on course to become the world’s largest within as little as a decade, so fundamental a shift is fraught with implication. First, the positives. Much of the squeeze on living standards since the aftermath of the financial crisis can be blamed on the mis-match between stagnant growth and persistently high inflation. Even a slight dip in China’s insatiable appetite for raw materials relieves the pressure. Britain, in particular, also stands to benefit if the shift from investment to consumer-led expansion means more wealthy Chinese buying Burberry or Rolls-Royce.

But there are major risks here, too. Strong Chinese growth helped tow the global economy out of the financial crisis; as it slows, still-fragile recoveries – most crucially, in the US – may founder. Hardly less of a concern is that China’s fraying social fabric cannot take the pressure, with unpredictable and potentially dramatic consequences.

The smooth transition to a more balanced Chinese economy is, then, in all our interests.  But the transformation will be a long and difficult one, and it has only just begun.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Portfolio Administrator

£14000 - £16000 per annum: Recruitment Genius: This company has become known a...

Recruitment Genius: Mechanical and Electrical Engineer - Midlands

£35000 - £38000 per annum: Recruitment Genius: This leading provider of refrig...

Recruitment Genius: Sales / Account Manager

£22000 - £25000 per annum: Recruitment Genius: A Sales / Account Manager is re...

Ashdown Group: Application Developer - C#.Net, ASP.Net - Cambridgeshire

Negotiable: Ashdown Group: Software Application Developer (C# & ASP.Net, SQL S...

Day In a Page

Read Next
Mukesh Singh, who appears in the film, was sentenced to death for his part in the 2012 rape  

The depressing similarity between the Delhi rapist Mukesh Singh and Oxford's Police

Sophia Cannon

If I were Prime Minister: I'd champion the young and hold a cabinet meeting on top of Ben Nevis

Bear Grylls
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot