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China’s economic slowdown, its ripple effect

  • Published
    2nd Sep, 2023

Context:

China's economic slowdown sparks concerns of deflation, raising questions about its future and global ramifications, necessitating a deeper understanding.

The Growth Strategy:

  • Premier's Caution: In 2007, Premier Wen Jiabao cautioned about China's unsustainable economic growth characterized by instability and imbalance.
  • Infrastructure Investment: China responded to the warning by investing heavily in infrastructure, including railways and energy sectors, to sustain prosperity.
  • Domestic Legitimacy: China's leaders relied on high economic growth to maintain domestic legitimacy and create prosperity for its citizens.

Focus of China:

  • Shift to Quality of Life: In 2017, President of China redirected their focus towards improving citizens' quality of life, recognizing changing expectations.
  • End of High Growth Era: China's previous reliance on double-digit growth from exports and infrastructure spending came to an end.
  • Economic Challenges: Lower growth rates resulted in job scarcity, rising unemployment, and the necessity for political decisions to tackle these economic challenges.

Political Economy and Reforms:

  • Role of China's Political Economy: China's political economy exerts substantial influence on economic policies and decisions, impacting innovation and economic dynamics
  • Complex Economic Landscape: Recent factors, including trade conflicts, pandemic responses, and housing market challenges, have further complicated China's economic environment.
  • State-Owned Enterprises (SoEs) and Path-Dependency: The presence of SoEs and path-dependency issues in China's economic structure necessitate careful consideration and reform efforts.
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