During the earlier part of the century China was looked upon as a remarkable and singular example of a country on a trajectory that seemed to follow the phrase “ever upward and onward”.
For example, its annual growth rate had double digit numbers.
But then came the world financial crisis, which caused its annual grow rate, while still impressive, to fall into the territory of single digits.
More than that, in the past few years its economy has slowed even further. Annual growth rates of 6.5% have not been unusual.
During such conditions, often China’s authorities have reached for what economists in the United States call quantitative easing, meaning that the People’s Bank of China, its central bank, eased lending requirements by reducing reserve requirements of funds banks would have to hold in reserve.
China’s other way of coping with lower GDP numbers was to engage in massive spending on infrastructure and housing.
However, the price of resorting to such spending has meant that all levels of government, from the national government to governments at the local level, have incurred ever greater levels of indebtedness.
Then, of late, the ongoing trade disputes between the United States and China have had the effect of slowing China’s economy even further.
For its part, the Trump administration has maintained that, whereas China’s trade negotiators and China’s President Xi Jinping had agreed to particular terms regarding such things as protection of intellectual property and subsidies to China’s state-owned enterprises, President Trump and his trade representatives have charged China on reneging on particular provisions, one presumes, with the goal of renegotiating provisions they had thought were already settled matters.
As well, whereas China wants the Trump administration to rescind all tariff increases the administration had imposed in the past year, upon the signing of a trade agreement, Mr. Trump wants to keep particular tariffs in place to use as leverage in order to compel China to abide the terms of the agreement.
A looming and nagging questions for many China watchers and economists is whether China can continue to its “Keynesian” type of policies---pumping ever greater amounts of money into its economy.
Although not quite the same thing, the U.S. had its own troubles with Keynesian policies: In the 1970’s stagflation had its way with the economy, causing unemployment or underemployment while increasing prices at the same time.
Another problem China faces is the devaluing of the Yuan, given China’s slowing economy. When the currency tends to decline in such a manner there is the real risk of capital flight. At the same time, Chinese officials are loath and fearful that the diminution of the value renminbi will incur U.S. wrath, which would be expressed in the form of charges of currency manipulation.
Still, the advantage for China would be that its exports would be more affordable to countries that import Chinese goods and services, perhaps, canceling some of the exorbitant tariffs, measured in the hundreds of billions of dollars, being imposed on China by the U.S.
In some respects, even before trade disputes arose in the past year, China’s policies have alternated between allowing its banks to lend greater amounts of money to private businesses and lesser amounts of money when authorities reckon that too much liquidity is affecting the economy.
But since China’s economy slowed late last year, the central bank has increased lending and has required that banks maintain fewer reserves, in effect, lowering interest rates.
As well, some taxes have been reduced and state-owned enterprises, the favored sectors of China’s economy, have been lent even more money by China’s state-owned banks.
Thus, the combination of increased lending, increased spending on infrastructure like bridges, housing, telecommunications and housing have reversed some of the declines in GDP the country had experienced several months ago.
According to some observers, China injected nearly $390 billion, nearly 2.7 trillion Yuan into its economy during the first quarter of this year. It takes about 6.9 Yuan to purchase one U.S. dollar.
In recent weeks the Yuan has fluctuated relative to the dollar; at one point it was worth more, at about 6.5 Yuan to the dollar.
In the past one of the ways China manipulated its currency was by the People’s Bank’s selling Yuan and purchasing U.S. Treasury bonds. But in recent years the central bank has shed some of its Treasury bond holdings.
During the first three months of the year China’s spending on things like highways and high-speed railways increased by nearly 50%, according to government-issued statistics.
According to government statistics, China’s growth during the past few quarters came in at 6.4%. However, a number of China watchers tend to be skeptical of such statistics. In general, they say that it isn’t unrealistic to reduce such percentages by about half.
In related news, news sources indicate that China’s exports decreased in April by about 2.5% relative to their level at the same time last year. This number is contrast to a 14% increase in exports during the previous month, experts say.
Some analysts maintain that even without the Trump administration’s increases in tariffs, various parts of the world economy have been slowing and that because of anemic GDP rates in Europe, likely the level of exports from China would be declining in any event.
China’s total imports rose about 4% from a year earlier last month, observers say.