In this article, I review China's economic history and trends that might impact growth and stability. Looking at recent events, I try to answer why China's Economy is stable in some respects, and yet, dangerously at risk in others. The worrying conclusion is that most countries may well be hardly in a better position, if at all.
The socialist market economy of the People's Republic of China is arguably one of the world's largest economies with respect to purchasing power. China has built its economic growth on well-priced exports of machinery and equipment. In addition to export, China has created cities around their production plants resulting in one fourth of China's economy in real estate.
China is also one of the world's largest importers after the United States, importing a total of $1.7 trillion, including oil, metal ores, plastics, as well as organic chemicals. Interestingly, China is also the world's largest importer of aluminum and copper.
With a total population of 1.3 billion, China on top of being the second largest economy, has also been the largest contributor to world growth since the global financial crisis of 2008.
China's economic growth has slowed in the last few years. In 2017, China's economic growth rate slowed to 6.8 percent, while prior to 2013, China's growth over 30 years sat in the double-digits. It is not to say that China's market isn't strong or stable. Although a decline in growth is the current case, China is refusing a slow-down in its economic market without a fight.
President Trump is threatening China with new tariffs on $200 billion worth of imports. China is retaliating by raising import duties on $34 billion worth of American goods. Such goods include soybeans, electric cars, as well as whiskey. The trade dispute between the two largest economies is escalating. China, however, responded by stating that if the US continues to take such an approach, that China will take the necessary measures to defend themselves.
According to CNN, the Chinese government announced on June 28, 2018 that it will loosen or remove restrictions in various industries including railways, shipping and power grids. "I think they would very much like it to be seen as China opening up to the rest of the whole world rather than something that is done to assuage the Trump team" said Louis Kuijs, head of Asia Economics at research firm Oxford Economics. China mentioned earlier in the year that its plan was to trim its list of industries where foreign investment is restricted by the end of June 2018.
It seems as if this year, China's goal is to tackle some of it's biggest economic hurdles, such as financial risk and environmental pollution. A first priority will be managing and preventing major financial risks within the Chinese economy and continue to clean up and tighten controls over its financial sector. China will be looking forward to their anti-poverty campaign, a project by Xi Jinping. The purpose will be to relocate those from in need to new housing with water and power. Not only will this look to boost GDP and economic growth as a whole, but it's aim is to promote support for the political party and its leaders.
China has also implemented a social credit system, where "points" will be deducted for bad behaviour such as a traffic violation or not paying a bill on time. This system will ultimately aim to monitor and influence behaviour of both organizations and individuals.
If China is successful with the new reforms, it will allow the economy to take a new lead in adapting to a dynamic world. If not, China's economic stability could have severe impacts. With a projected growth rate of 6.4% at the time of writing, China is still a world leader in terms of GDP. According to the Organization for Economic Development and Copperation, a 2% contraction would have a global effect of at least 0.5% on international GDP. That may not sound like much, but coupled with a financial crisis, this could easily send many nations into a dangerous negative.
The simple answer to this question is yes, and you don't need to be too afraid. We are unlikely to see a post-gold-rush type of collapse. China's economy is still growing, just not as rapidly as it has in the last 30 or so years. China has slumped to its slowest annual growth rate since the 90s, however, this does not jeopardize China's market from remaining one of the world's largest and strongest economies.
With that in mind, don't forget that the impact of a Chinese depression or even slowdown would be dramatic. And dramatic could be a good thing, well for those like me betting in favour of buying gold. Note that central banks are in creasingly finding themselves in my camp in terms of the wisdom stocking up on precious metals.