Nothing ever remains same, say wise people. The economy of China completely fits the sentence if we come to think of the changes and fluctuations it faced in the year 2015. With every passing year, there comes a number of changes either in positive or in negative side of the page. The world’s second largest economy, China, unfortunately met a disastrous change last year. The misfortune came to its economy which slowed down to a great extent and it has been expected to go below that in future. As Jim Chanos, a well-known short seller says in a CNBC interview:
“Whatever you might think about the Chinese economy, its worse.”
Here is a detailed review about it, have a look!
Why Is It Slowing Down?
China has come up with a growth target of 7% in the year 2015. This is definitely the slowest or we can say the worst expansion noted down in more than two decades. Putting light on the reasons behind this drastic slowdown, we should know that as big as the economy of a country becomes, it becomes much difficult to sustain it with stability in all sectors going in parallel with each other. There are some major reasons which became a tool for slowdown of China’s economy.
Slowing Down of Labor, Capital and Productivity
What brings economic growth to a country? Ofcourse the labor, capital and productivity that eventually depends upon first two factors. All three of them increased to a large extent in the recent past years for China and raised its economy to be the world’s second largest after US’s. These are all slowing now relative to the size of economy and it is also influenced by global slowdown of the world.
Technological Gap With the World
Chinese, in few past years, have become a nation that does not depend on exports much. Be it the technological advancements, it keeps looking for strategies to make its own products. This is how it faced a huge technological gap with the other countries of the world which resulted in the slowdown of economy.
Housing/ Real Estate Sector Slowdown
The real estate or housing sector contributes around 25% to 30% of China’s GDP. If we look at the recent past statistics of this sector, we can find a quick dive in the prices of houses and properties. It was between year 2010 and 2011, when Chinese Government started checking the housing policies and banned many schemes and sales for houses which has formed real estate bubble in China. There are a great many Chinese who have made huge investments in properties and housing which seems to fall largely in the year 2016 and 2017.
China, as we all know is the largest producer of steel in the world. The economy of China is greatly affected by its production and its utilization in different applications. The two main fields are automobiles and construction where steel and iron is used in large amount. The price of steel has faced a prominent decline in 2015 and it has resulted in slowing down the economy of the country.
Devaluation of Currency
People Bank of China or PBOC has taken a recent decision according to which the mechanism of RMB exchange has been reformed under the authorities. As a consequence of this decision, the value of China’s currency has dropped sharply to such an extent that had never been witnessed in two decades.