China’s economy growth sinks to lowest in 25 years

In another disappointing news for global markets, the world’s second largest economy recorded its lowest growth rate in 25 years. China’s economy grew 6.9 per cent in 2015, missing the government’s benchmark 7 per cent. This is China’s lowest since 1990. It is also the slowest quarterly growth since the 2008 global financial crisis.

The news couldn’t come at a worse time for China when it is seeking to play a crucial role in the global financial system through the New Development Bank (NDB) and Asian Infrastructure Investment Bank (AIIB). China’s currency has also been included in the global basket of currencies.

Due to the slow growth rate in recent times, the government has been pushing for consumption-driven growth and high-technology sectors. This is a strategic shift from China’s conventional state-investment driven model. China’s foreign trade fell by 7 percent and imports declined by 13 percent.

Economists and market analysts in China as well as globally have criticised China’s state-investment driven model that has resulted in severe overcapacity in many sectors and rising public debt. In his address to a government economic symposium on January 18, President Xi Jinping laid the agenda for 2016 where he said the crucial task was “to cut overcapacity, promote industrial regrouping, reduce cost for enterprises, develop strategic emerging industries and the modern service sector, and increase the supply of public goods and services”.

China has vowed to undertake market reforms that would give a greater role for the market and to make state-run enterprises more competitive. However, volatility in the Shanghai stock market has seen billions of dollars of wealth wiped out since July 2015. The recent currency fluctuations have become a major cause for worry and stalled measures. The government has been intervening to prop up the market and try and stall the decline.

China is in a freefall at the moment and in the backdrop of a weak global economy, some analysts say there could be a China-led global recession.

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