In a rare move, finance ministers and central bank governors of leading economies have voiced concern over the slowdown of China’s economy, the world’s second largest, which could pose serious challenges to the growth of the global economy.
China after witnessing nearly three decades of double- digit growth has been showing signs of slowness and India has now replaced China as the fastest growing major economy of the world.
As a result of the economic slowdown, the Chinese economic model, traditionally based on manufacturing, investments and exports, is currently transitioning towards a model focused on domestic consumption, services and innovation.
“This rebalancing, which is being implemented in a resolute manner, inevitably affects China’s economic partners, even if it is still too early to determine its precise impact. Yet, in any event, we will have to be ready to accompany these development,” the French Finance Minister Michel Sapin said in his address to the IMF yesterday.
Wolfgang Schauble, the German Finance Minister attributed global economic slowdown to the Chinese slowdown.
“This slowdown is related to the necessary ongoing transition of the Chinese economy, to lower commodity prices, to earlier exaggerations and domestic shortcomings in some countries, like insufficient structural reforms,” he said.
British Chancellor of Exchequer George Osborne underscored the shared interest of the international community in supporting China as it grapples to enhance the resilience of banks and corporates and ensure the sustainability of local government finances and credit.
“Structural measures such as state-owned enterprise and financial sector reforms and steps to reduce excess capacity will support China’s economic transition,” said US Treasury Secretary Jacob Lew.
China’s economy grew 6.7 per cent in the first quarter of 2016, the slowest in seven years, to reach 15.9 trillion yuan (USD 2.4 trillion), the government said last week.
The growth further narrowed from the previous quarter’s 6.8 per cent, which was already the lowest quarterly rate in seven years.
The Chinese economy logged 6.9 per cent last year, the lowest in over two-and-a-half decades. In 2014, China’s GDP grew by 7.3 per cent.
Signs of weaker-than-expected Chinese growth, volatility of the Chinese renminbi and persistent capital outflows has led to growing anxiety in the financial marketsu2014despite plenty and strong buffers that emerging market and developing countries (EMDC) have accumulated in recent years, said Alexandre Tombini, Governor, Central Bank of Brazil.
However, the Chinese leaders attending the annual Spring meeting of International Monetary Fund and the World Bank tried to assure the world leaders in almost every meetings they have had in the past few days and over the weekend that China’s economy continues to be strong and there is no cause of worry.
In his address, Governor of the People’s Bank of China, Xiaochuan Zhou assured the international community that all is well with his country.
“Since the beginning of 2016, growth in China has remained firm, with key indicators showing signs of improvement. GDP grew by 6.7 per cent in the first quarter year-on-year, with retail sales of consumer goods posting a stable year-on-year growth of 10.7 per cent,” he said.
“While the economy is slowing down, its structure and quality have improved,” Zhou said adding that the growth drivers have remained strong and sound fundamentals will continue to support long-term growth.
Zhou told the IMF that China will continue to implement the prudent monetary policy in a flexible and appropriate way, to keep adequate liquidity and maintain proper growth of credit and aggregate financing.
“The Chinese government will also strengthen structural reforms, particularly on the supply side, to strike a better balance among economic growth, structural adjustment, and risk prevention, with a view of achieving sustainable growth,” he said.