Although 2015 was a year of global economic woes, China's slowdown was not as bad as some would make it out to be. The country's economy slowed to a 25-year low and credit swelled at the local level. China has since been called to task for an erratic and jittery global market. But there are factors that should be taken into account before making judgments about the country's influence on the world economy.
NO HARD LANDING
China's economic expansion of 6.9 percent last year would have been inspiring in any time and for any country. Some have called China and Brazil the two main risks for another global recession, but comparing the two is misguided, as the latter's economic growth fell by 4 percent in 2015.
China's economy grew by 4 trillion yuan or 610 billion U.S. dollars last year, just 0.1 percent or 9.1 billion dollars less than what was expected for 2015. Some analysts questioned the figure's accuracy, saying the country's GDP may have been manipulated.
They cited China's manufacturing PMI, which has shown signs of contraction for months. But they failed to take the country's ever-expanding service sector into consideration. The service sector began to contribute significantly to China's economic growth in 2015, accounting for the majority of growth.
Although manufacturers like Caterpillar faced a gloomy year in China, Walmart and Starbucks maintained momentum. Their expansion has happened even at a time when brick-and-mortar stores are being rapidly replaced by online commerce in China. A cup of coffee is not a small, isolated purchase.
Stopping for a latte in a plaza can bring additional purchases, such as entertainment or leisure activities. "The Mermaid," a home-grown comedy directed by Stephen Chow, became the highest grosser ever in the country only 12 days after its release in February.
The growth in China's service sector has served as a cushion for employment, as attempts to reduce overcapacity in the steel, cement and housing sectors will result in layoffs in coastal areas. China's delivery services, for example, are constantly short on labor.
BRACING FOR CHALLENGES
China cannot trigger a recession that is already in shape. The current situation is the combined outcome of economic troubles in both developed and emerging markets. It has been said that lowering demand in China has driven down prices for bulk commodities. But many of China's imports, such as crude oil, actually increased last year.
As U.S. investor Jim Rogers put it, China is a victim, and not the cause of current economic problems, partly due to weak global buying power. But China's economy is sufficiently resilient. Parts of China's rusted industrial zones, which grew by just 3 percent in some provinces, have been buttressed by high growth in other areas.
Southwest China's Chongqing Municipality saw double-digit growth last year, for instance. China is less likely to see the kind of debt crisis that the EU has dealt with, as China operates on a unified treasury system, making bailout plans easier to create and manage.
China's ability to endure risk is also strengthened by its moderate deficit level (less than 3 percent) and a large household savings surplus (over 4 trillion yuan). China is bracing for bailout plans in 2016 by raising its national budget deficit in a prudent way to prevent local debt risk from spilling over.
Huge household savings and foreign exchange reserves will help to guarantee adequate capital for Chinese banks, which are lending more in order to stabilize growth. In January, new yuan loans rose to 2.51 trillion yuan. These factors indicate that ongoing capital outflow will not avalanche into all-out capital flight.
Actually, money outflows have shown some signs of slowing already. China has also pledged to refrain from applying capital controls to shore up its currency, nor will it launch a currency war. China launched a new currency index - the China Foreign Exchange Trade System (CFETS) - in December, pegging its currency to a basket of 13 currencies used by its trading partners.
China's currency has since stabilized or even appreciated against those currencies. In a way, China's currency policy looks more predictable than the vague explanations of Janet Yellen.
SUPPLY-SIDE REFORM
Wise monetary policy may prevent a crisis, but it's not a panacea. The key to dragging the global economy out of its current quagmire will require significant supply-side changes. China's supply-side structural reforms are a good choice not only for the country, but for the world at large.
President Xi Jinping said at last year's China-UK Business Summit that growth is still the general trend and will not be changed by temporary market fluctuations. To use a metaphor: China is offering two tables of food, but only one table of diners is coming to eat.
China's top policy makers described this as "overcapacity due to a lack of effective demand." China's adjustment involves supplying "one table of entrees and another table of desserts." Reducing redundancies now, despite slowing expansion, will allow the country to offer more appetizing economic opportunities later.
A meeting of the national legislature to be held in March will see lawmakers examine a new five-year plan, which will hopefully aid in turning the global economy around in the near future. As China vows to bring equal opportunities for global investors, those who rush to "take flight" will more than likely miss the opportunity to "take off."
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