What is the influence of the Chinese economy? Why the world is paying attention and its trends

China’s economy continues to develop rapidly

China used to lag far behind developed countries as a developing country, but in the 2000s it overtook European countries and in 2010 overtook Japan to become an economic superpower. Some experts predict that by 2040, it will overtake the United States to become the world’s number one.

The impetus for the development of the Chinese economy to what it is today is the adoption of the reform and opening-up policy led by Deng Xiaoping. Progressing from a planned economy to reforms, China’s poverty rate dropped to 3.3% (2016).

However, rapid economic development has created various strains both inside and outside China. As a result of the widening economic disparity between urban and rural areas, the number of migrant workers in cities has increased, making it difficult to secure a labor force in rural areas. The increase in exports due to the rapid expansion of production capacity has given rise to trade friction with other countries, including the United States, and has become a factor in disrupting market prices.

50 years as seen by Nikkei Business, leading the world economy

The change in the Chinese economy was triggered by the “reform and opening up” policy led by Deng Xiaoping in 1978. China’s gradual transition from a planned economy to a market economy has had a major impact on the growth of Chinese companies. Companies such as Lenovo, Huawei, and Alibaba Group have emerged from China, which until then had provided labor to foreign-affiliated companies as the “world’s factory,” and are standing shoulder-to-shoulder with the world’s top companies.

“Post-corona” world economy indicated by 6.8% decline in GDP from January to March

The new coronavirus has cast a shadow over the Chinese economy, which has continued to grow for many years. The GDP from January to March 2020 was “down 6.8% compared to the same period last year.” This is the first negative growth since 1992, when the record was set, and if this situation continues, it is said that “the negative growth for the whole year for the first time since the turmoil of the Cultural Revolution” is in sight.

Switch to expansion of domestic demand, with local areas playing the leading role

The National People’s Congress (NPC) held in May 2020. Normally, a target for the real economic growth rate would be announced on the first day of the meeting, but for the first time since 1988, the target was not set. This is because the future of the economy is uncertain due to the impact of the new coronavirus.

On the other hand, Premier Li Keqiang emphasized the “strategy to expand domestic demand” in the government work report. While external demand has cooled due to the global epidemic of the new corona, the idea is to expand domestic demand and connect it to economic growth.

Economic V-shaped recovery, new corona countermeasures in the background

Thanks to thorough infection control, the Chinese economy is on a recovery trend. The real GDP for the third quarter (January to September) announced by the National Bureau of Statistics of China increased by 0.7% year-on-year. On a quarterly basis, sales decreased by 6.8% in the first quarter, but increased by 3.2% in the second quarter and by 4.9% in the third quarter.

The driving force behind the recovery was an increase in exports and infrastructure investment against the backdrop of rising external demand for personal computers and masks. Behind this is the success of the new corona countermeasures that have been thoroughly implemented on a nationwide scale.

The dilemma of the appreciation of the Chinese

China, which quickly emerged from the economic slump caused by the new coronavirus, is struggling with the “strong renminbi”. In June 2020, 1 dollar = 7.0-yuan level, but in just one year, 1 dollar = 6.4 yuan. This is the highest price range since 2018.

The strong yuan weakens the international competitiveness of export industries. If this situation continues, it could have a serious impact on the Chinese economy. In fact, export growth in May 2021 is 27.9% year-on-year, down from 32.3% in April. That said, in order to curb rising prices of imported resources such as copper and iron ore, it is not possible to easily correct the appreciation of the yuan.

In anticipation of post-coronavirus growth, the Chinese government is being asked to navigate the difficult path of maintaining the renminbi exchange rate “neither too high nor too low.”

Chinese economy returns to cruising speed, 8.0-8.5% growth in 2021

According to the National Bureau of Statistics of China, GDP in the April-June quarter of 2021 increased by 7.9% year-on-year. Experts say that the Chinese economy has almost regained its cruising speed.

The driving force behind the recovery is a stronger-than-expected expansion in exports. It is said that a major factor is that Chinese companies are doing “alternative production” while other countries’ production capacity is not recovering due to the new corona. Vaccination progressed in Europe and the United States, and demand recovered.

Given this situation, economists in China are forecasting growth for the full year of 2021 to be “8.0% to 8.5% higher than the previous year.” There are also high expectations from overseas companies.

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