COVER STORY – Life Style of CHINA
(PMI)—according to a survey by the Chinese financial magazine Caixin—falling to 47.1, indicating the biggest contraction since 2008.
“The economy is in the process of bottom¬ing out,” says He Fan, the chief economist at Caixin’s insight group.
As an UPSC civil services aspirants you may know the economic condition of different different countries its is very important for IAS aspirants also .
THE GOVERNMENT HAS ASKED CHINESE CITIZENS “TO BE PATRIOTIC” BUY STOCKS AND SUPPORT THE ECONOMY.
The government this year slashed its GDP growth target to 7 percent—unthink¬able during the previous decade of double-digit growth and the lowest figure since 1990. Even reaching this target appears an increasingly diffi¬cult struggle. China has grown 7 percent in the first two-quarters, but the consensus among most international economists is that actual growth is two or three percentage points lower.
PANIC IN THE PARTY
These figures have appeared to prompt some degree of alarm, triggering unexpected interventions by Beijing’s economic planners that analysts say suggest an unusual degree of panic. To begin with, Beijing attempt¬ed to prop up the falling stock market
with a series of measures that included banning sales of shares by entities owning more than 5 percent of any stock, ordering state-run firms to buy sev¬eral billion dollars worth of stock, and even launch¬ing criminal inves¬tigations into short-sellers and jailing some traders. The China Securities Regulatory Commission says it is now investigating 52 cases of “illegal stock holdings reduction”. The government has also launched an all-out propa¬ganda push through the Communist Party’s mouthpieces, telling Chinese citizens “to be patriotic”, buy stocks and support the economy. Yet even the party’s please, for once, have fallen on deaf ears. Traders have continued to dump stocks, leading to the “Black Monday” of August 24.
“The crash of the Chinese stock market is very costly to the credibil¬ity of the Chinese government,” says Li Wei, a professor of economics at the Cheung Kong Graduate School of Business in Beijing. “It was a bad
move for the Chinese government to talk up the stock market from late last year, even worse to cheer it on when the index rose sharply. The policy missteps are very costly for the Chinese economy.”
ANGER ON THE STREETS
As much as Beijing has been pillo¬ried for its market intervention, its actions are understandable consid¬ering the fate of millions of investors. China’s stock market is unique in that institutional investors, who dominate markets in developed countries, are a minority in Shanghai. As much as 85 per cent of investors in Shanghai have account balances less than 100,000 RMB (around Rs 10 lakh). And, accord¬ing to available data, 94 percent of them do not have a college degree.
The impact of the Shanghai melt-down has consequently been felt most by individual Chinese investors; by first-time investors such as Li Lingmin, who recently graduated from Beijing Normal University and bought her first stocks in March at a time when the bull run was being played up daily on the front pages of official newspa¬pers such as the People’s Daily and on evening news broadcasts. However, real estate projects. Chen Yan, who heads the Guian plan, says the idea is to build an entire software industrial chain. He estimates the value of output to reach $15 billion in the next two years. The Chinese government has already got the backing of its telecom behemoths —China Mobile and China Unicom—and tech giants—Alibaba and Xiaomi—to back the plan.
Yet today, the fate of mega-projects such as Guian is increasingly uncer¬tain on account of rising strains in the banking sector. On a recent visit, there were few signs of activity at construction sites, while sprawling buildings allocated for tech companies still appear unfilled. Local officials acknowledged privately there were concerns on whether the grand 70-bil- lion yuan budget was indeed feasible. “I believe the big concern of the government is the pace of slowdown, rather than the slowdown itself,” says economist Xu of CEIBS.
On August 21, the China Banking Regulatory Commission issued guidelines “encouraging banking institutions” to lend to major projects that “support national strategies” to respond to concerns that funds were drying up. Beijing has limited tools at its disposal to kick-start growth, unlike in 2008 when it unleashed a $586-bil- lion stimulus. “With local govern¬ment debts still running high, Beijing will need to turn more attention to
market-oriented measures,” says Li Wei. “And this is not a bad thing. Even though market-oriented mea¬sures such as tax cuts and further liberalization will take longer to have their stimulus effects felt, they have the additional benefits of increasing productivity and efficiency of the Chinese economy.”