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The Chinese Economy Faces Lower Growth as Government Implements Measures
The Current Economic Landscape
The Chinese economy is experiencing a period of lower growth, which could have global implications. In the second quarter of this year, Chinese gross domestic product grew by 6.3% year-on-year, below market expectations. The pace of industrial production growth did show some improvement, but youth unemployment hit a record high in June. The Chinese Communist Party has set a growth target of 5% for 2023, lower than previous years. The government has announced several broad measures to boost the economy, but specific details are lacking.
The Politburo's Quarterly Meeting
The latest readout of the Politburo's quarterly meeting on economic affairs has emphasized the challenges facing the Chinese economy. It mentions "risks" more frequently than before and highlights the need to expand domestic demand. While the meeting did not announce any major new policies, it suggests that further support will be rolled out in the coming months. However, the lack of urgency or specific measures is not reassuring for the near-term outlook. The Chinese economy is still dealing with the triple shock of Covid-19, ailing property sector, and regulatory changes.
A Structural Slowdown and its Impact
The Chinese economy is entering a longer-term structural slowdown, which could lead to a lower average annual GDP growth rate. This slowdown could also accelerate the decoupling of China from the West in terms of investment flows and manufacturing. As China shifts its economy away from the property sector and towards advanced manufacturing, the global industrial cycle will be affected. China's push into electric vehicles is an example of this shift and has led to the country becoming the world's largest auto exporter.
The Second Order Impact
China's reaction to its changing economic landscape will have second order impacts on the global economy. While there may be a decrease in demand for commodities like iron ore, there will be increased competition in advanced manufactured goods. Chinese households, the private sector, and state-owned enterprises are also undergoing a transition as the property sector wanes. This pivotal point in the Chinese economy will result in a new version with new drivers and idiosyncrasies.
Conclusion: How the Chinese Economy's Lower Growth May Impact New Businesses
The current economic landscape in China, marked by lower growth and challenges, has the potential to impact new businesses venturing into the Chinese market. As the Chinese government implements measures to boost the economy, there are key considerations for entrepreneurs and companies looking to establish themselves in this shifting environment.
Firstly, the structural slowdown and transition towards advanced manufacturing could lead to a reconfiguration of investment flows and manufacturing dynamics. New businesses entering the Chinese market must assess these changes and adapt their strategies accordingly. This may involve exploring opportunities in emerging industries and sectors that align with China's evolving economic priorities, such as electric vehicles or other advanced manufacturing sectors.
Secondly, the emphasis on expanding domestic demand highlighted in the Politburo's quarterly meeting presents opportunities for businesses to tap into the growing consumer market within China. Despite lower overall growth, the Chinese middle class continues to grow, presenting a potential customer base for new businesses offering innovative products or services.
However, the changing economic landscape also brings challenges. The lack of specific measures and uncertainties in the near-term outlook create an environment that requires careful risk assessment and adaptability for new businesses. Keeping a close eye on any regulatory changes will be crucial to navigate potential impacts on operations or market access.
In conclusion, while the lower growth of the Chinese economy poses challenges, it also presents opportunities for innovative and adaptable new businesses. Those seeking to enter the Chinese market must closely monitor and respond to structural shifts, align with evolving economic priorities, and remain agile in navigating regulatory changes. By doing so, they can position themselves for success in this dynamic and evolving business landscape.
Article First Published at: https://www.cnbc.com/2023/07/25/what-new-norm-of-slower-chinese-growth-could-mean-for-the-global-economy.html.svg)
