China hopes to move from an economy driven by investment to one based on consumption and service. But there are plenty of doubts as to whether it can pull it off.
Chinese consumers and businesses are losing confidence. The Chinese manufacturing sector contracted for the first timein 19 months in December. The car market suffered its steepest year-on-year drop in almost seven years in November, marking the first contraction since January 2017. Official figures show GDP growth of 6.3% in the fourth quarter, but Berenberg Bank reckons the true growth rate has fallen to 3%. The domestic stockmarket has reflected the weakening economic backdrop: it slumped by 22% in 2018.
The authorities look increasingly rattled. In a bid to reduce the risk of a sharp slowdown, the central bank has cut the reserve ratio for banks for the fifth time in a year, freeing up $116bn for new lending. Beijing has also approved new rail projects worth more than $125bn.
China has "not fired its heavier artillery", such as a rate cut, says Christopher Beddor on Breakingviews. "But there is little chance of a credit binge of the sort seenin 2009, when credit growthleapt from 16% to 33%," says Tom Holland in the South China Morning Post, as Beijing's longer-term aim is to reduce its huge debt pile. China's efforts to bolster growth will cheer emerging and global markets. But its struggle has revived doubts as to whether it can pull off the transition from an economy driven by investment to one based on consumption and services, as is the case in industrialised economies.
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The increasingly authoritarian leadership under Xi Jinping could compound disillusionment caused by a slower economy. Diana Choyleva, head of consultancy Enodo Economics, told The Observer that in 20 years of covering China, "this is the most worried I've ever been about the party's ability to keep the show on the road".
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Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.
Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.
Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.
