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China’s economy is moving up a gear

Last year, China’s economy suffered from the trade war with the US and the stockmarket was slumping. So Beijing decided to switch gears and stimulate the economy once again. It appears to be working.

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Ever since Tiananmen Square, rulers have placated the population with strong growth

"China is the dog and the rest of the world economy is its tail," says John Authers on Bloomberg. The global economy breathed a sigh of relief when the Chinese economy, the world's second largest, grew by 6.4% year-on-year in the first quarter of 2019, slightly better than expected and the same pace as in the previous three months. Factory output went up by 8.5% in March, and retail sales expanded by 8.7%.

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"China's Communist rulers continue to keep up their end of a compact made with the populace ever since the Tiananmen Square massacre of 1989: no democracy, in return for sustained economic growth of more than 6% per year," says Authers. The current round of stimulus shows just how determined policymakers are to bolster growth as the country marks its navy's 70th anniversary, according to Diana Choyleva of Enodo Economics.

A key reason the economy had lost steam was weaker consumer demand in cities. Despite better-than-expected economic growth in the first quarter, China's job market saw its lowest level of demand for workers in six years, says the South China Morning Post.

The stimulus is working...

... but it's obscuring long-term problems

It's not just a question of excessive borrowing clogging up the system. There's also the "political stance that works against needed reforms and private firms to the benefit of state enterprises and public ownership", says George Magnus in Prospect magazine. The Communist party is reluctant to embrace economic liberalisation, while state-owned companies benefit from subsidies, access to credit, tax breaks, market access, and legal protection to the long-term detriment of productivity, growth and equity returns.

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