China is currently in an economic slowdown, the causes of which are a great debate in Asia’s largest economy. China, the world’s second largest economy behind the United States, expanded 7.6 % in the second quarter from a year earlier, the slowest pace since 2009. While a growth rate above 7% might seem thriving at first glance, you must first consider that China has had an average annual growth rate of nearly 15% since 2000. Many economists believe that their growth will slow further to a rate of around 7.0% for 2012. Is the economy of the most populous nation in the world in trouble?
The causes of the current stagnant economy are up for debate, but there are a few factors that most international business professionals can agree on. The consensus primary cause of the downturn is China’s export heavy growth model and the current state of the global economy. The global economic slowdown and Europe’s debt crisis are causing many exporters in China to face downward pressure. This has harmed many nations, but it has adversely affected China especially because they are so dependent on international trade.
Another major issue that China is facing is a slowdown in their construction sector. Demand in the real estate market in China is very weak right now; poor economic conditions are causing a decrease in the amount of private construction spending. The government has begun ramping up investment in infrastructure in an attempt to rescue the economy from peril. The problem with this strategy is that consumers, businesses, and debt-burdened local governments in China have very little interest to begin spending money any time soon.
While China’s economy is still growing, it has been doing so at a painstakingly slow pace in regards to previous years. The problems in China may be dwarfed by larger issues in Europe and elsewhere, but these could be signs of worse to come. Only time will tell whether this is a minor setback in an otherwise flourishing economy or the beginning of anemic growth for years to come.