China goes for growth

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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

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".




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
China's economy

China’s economy to shrink for the first time since 1976

China may now be on course for its first quarterly contraction since 1976, with Goldman Sachs predicting a 9% plunge in first-quarter economic activit…
20 Mar 2020
China's economy

Is China heading for a secret recession?

The shutdown sparked by the coronavirus outbreak could put China at risk of a “secret recession”.
25 Feb 2020
China's economy

Has Hong Kong become a failed state?

Hong Kong cannot protect its citizens, provide basic services or command the trust of its people, and it is failing to provide the safety and stabilit…
14 Feb 2020

Most Popular


What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
UK Economy

The UK’s bailout of the self employed comes with a hidden catch

The chancellor’s £6.5bn bailout of the self employed is welcome. But it has hidden benefits for the taxman, says Merryn Somerset Webb.
27 Mar 2020
UK Economy

Debt jubilee: will our debts be written off?

The idea of a "debt jubilee" – general society-wide cancellation of debt – goes back to Biblical times. Could it happen again? And would it really do …
28 Mar 2020

Coronavirus: what it means for your mortgage or your rent

Ruth Jackson-Kirby looks at all the key questions for owners, renters and landlords affected by the coronavirus crisis.
29 Mar 2020