Chinese economy slows but it's weatherable

New Delhi, Sep 15 (IANS) Key indicators reflected China's factory output and retail sales going through their weakest growth since August last year. Retail sales have slumped, with demand at home weakening, and unemployment continued to tick up, said reports.

Industrial production rose just 5.2 per cent year‑on‑year in August, down from 5.7 per cent in July, and retail sales expanded only 3.4 per cent last month. It slipped from July’s 3.7 per cent, missing a forecast gain of 3.9 per cent.

Meanwhile, unemployment rate edged up to 5.3 per cent in August, while fixed‑asset investment grew a meagre 0.5 per cent in the first eight months – the weakest pace for that period since 2020 – and property investment collapsed nearly 12.9 per cent year‑on‑year through August.

Earlier this month, Arthur Kroeber, founder of Gavekal Dragonomics, a China-focused economic research firm, had pointed out: “You have a significant problem of persistent deflation, excess capacity in industry, declining profits, a weak job market, and a property market that’s in very poor shape.”

However, he soon added: “So there are a lot of problems. It’s not vibrant from a consumer standpoint. But from a productive standpoint, there’s a lot that’s going right.”

He was speaking at an event, hosted by the Washington-based Center for Strategic and International Studies on September 9.

Tianlei Huang of the Peterson Institute for International Economics stated at the same event: “It’s facing the bursting of a housing bubble, weak consumer demand, you know, all those challenges. Export growth is also slowing down amid the trade tensions with the US. But the economy, obviously, is also not collapsing.”

Of late, certain quarters have been pointing out that foreign creditors’ distress, tariffs and factory relocation each impose real costs on China, but experts opined that these operate mostly as amplifiers of domestic weaknesses rather than primary causes.

China is a creditor to many developing countries through bilateral loans, export credits and Belt and Road projects. That means distress abroad raises risks for Chinese lenders and exporters rather than producing large direct sovereign liabilities for China itself.

Chinese lending abroad creates credit and reputational risk for specific banks and contractors, and can shave growth in some export or construction niches, but it is not the dominant macro vulnerability for China’s overall economy.

As far as trade tariffs are concerned, it can be a real headwind that can shave points off growth in the short‑to‑medium term and exacerbate deflation and excess capacity. They are important, but not the sole or decisive source of China’s current economic difficulties.

Meanwhile, there was a gradual move towards ‘China Plus One’, with multinationals adding production in Vietnam, India, Mexico and elsewhere to reduce geopolitical and tariff risk.

Relocation is a structural trend that will trim China’s share of low-end manufacturing and reshape regional labour markets. It’s a meaningful medium-term drag in specific sectors but not an immediate collapse driver for the whole economy.

The central long‑run challenge for China remains restoring healthy nominal demand, resolving real‑estate and local‑government debt problems, and managing the industrial upgrading transition.

If Beijing addresses those domestic vulnerabilities while easing frictions with trading partners and accepting gradual production rebalancing, China can weather these external hits without systemic collapse – though growth and employment patterns will change.

--IANS

jb/pgh