Chinese stock markets took a plunge early this year, falling by 11.6 percent in one week alone. The market has since stabilized, but the event brought the world’s attention to China’s economic troubles. Declining growth and export rates are to be expected as the world’s second-largest economy makes the transition from manufacturing to providing consumer services, but the first few months of the year have shown that the consequences and reactions are greater than anticipated.
Production in China rose by only 5.4 percent in January and February, which has not occurred since the global recession of 2008. Chinese exports decreased by 25.4 percent in February, while retail sales in China were also lower than expected. The slowing of production and economic growth is not unexpected; there is only so much demand for the goods China is producing. Overproduction of some goods, such as steel, is actually hurting the Chinese economy. However, the instability and uncertainty of China’s economic position has many analysts and investors worried.
The majority of economists seem to agree that China is simply going through a rough transition period, but there are also articles comparing modern-day China to America in the late 1920s. It seems unlikely that China’s situation is quite that dire, but such predictions can turn into self-fulfilling prophecies. China’s stock market is dominated by investors with little financial experience who are likely to panic and sell their stock if a downturn is predicted. This could lead to another market crash as everyone suddenly tries to get rid of their stock and prices decline rapidly.
In addition to China’s volatile stock market, the nation’s amount of debt has economists particularly concerned. Its debt is currently worth the value of about two and a half years of economic output and is continuing to rise. Corporate debt is particularly problematic, since the recent economic decline has meant that many businesses are finding it harder to pay off their loans. In an effort to alleviate some of this debt, China has cautiously begun selling its bad debt to foreign investors. Banks have also begun easing loans on faltering companies in an attempt to stabilize the economy.
China is currently dealing with the unpleasant results of rapid industrialization and economic expansion. If its economy continues to be at least moderately well-managed and unnecessary panic is avoided, it seems likely that China will emerge in a couple of years from its confusion and instability with a more self-sufficient and steady economy. This will probably mean that China will cease to be a provider of cheap materials and labor, but the growing middle class will have greater demand for American goods as well. And as Americans, isn’t that all we really care about?