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3 Reasons The Chinese Economy Might Be On a Downturn

By Kevin Yang - International School of Beijing

China’s economy represents the most amount of people in the world, at approximately 1.4 Billion, but as of late has not been performing to the levels it has in the past. News events like this year’s stock market plunge in August and the Yuan’s continuous devaluation have put Chinese officials on watch.

After three decades of booming economic growth, China’s economy is now growing at a meager 7%. Below, I analyze 3 money factors in what is causing and what may further exasperate the great nation’s economic slump.

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Focus on Environmental Improvement Has Cost BIG bucks.

That China’s environment is in a state of utter deterioration is no mystery. As a Beijinger myself, I can attest to that. After years of pressure from both other countries and its citizens, the Chinese government has finally started initiatives to start cleaning things up. However, this heroic decision has also come at a huge price.

The nation’s Airborne Pollution Prevention and Control Action Plan, mandating reductions in coal use and emissions, has estimated that 277 billion dollars will be invested towards target regions with heavy air pollution. What’s more is that this is just one of many other money-demanding policies in China’s efforts to limit coal consumption and to promote cleaner energy supplies; the total amount invested is a staggering 817 billion dollars (as of 2015). Comparatively, China spent 91 billion dollars in 2014: which means that China’s environmental investment multiplied by 9 fold in a span of a mere year.

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To put that into perspective, the current $817 billion dollars is 8.6% of China’s whole GDP. That’s a huge amount for any investment. Compounded with China’s slow economic growth rate, the increasing environmental investment could cause further economic problems for the nation in the foreseeable future.

Though China’s determination to clean up its environment is commendable, the eco-friendly plan’s impact on its economy cannot be overlooked.

China is in Serious Debt from Unproductive Investment

The Chinese economy is fundamentally focused on the construction of new buildings and roads. An eye-popping statistic for you: China consumed 25x more cement than the U.S. did, on average, from 1985 to 2010 (Forbes). China has also infamously been associated with its investment in real estate. In fact, China has seen its total debt quadruple, to a huge 28.2 trillion dollars. Unsurprisingly, nearly half of the debt can be attributed to local governments borrowing too heavily for infrastructure projects.

Although China is managing to weather the storm, if these poor investments and huge debts are not cleared, the economy may endure severe damage. If these alarming numbers don’t call for action, the question is, what will?

Corruption and Embezzlement Create Huge Inefficiencies 

Infamously known for corruption, the Chinese government has cost itself millions. In a most recent case, millions of dollars were found to be embezzled from the Beijing-Shanghai high-speed rail link project. Its railway minister, Liu Zhijin, was sacked over corruption allegations and has been charged for embezzlement (BBC). This is just a small sample of a major problem that is occurring across the nation.

This corruption is also a root for the urban inequalities prominent in China. Because of poor rules to prevent corruption, the gap between the poor and the rich is widening: the rich become richer while the poor become poorer. All this unsettlement and instability has only worsened present economic circumstances.

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In conclusion, China has many underlying economic struggles. With decreasing economic growth, China will need to find solutions as fast as possible. However, the sky isn’t falling. It’s time for China to adjust and reform, and to show that it is indeed capable of being the stable and responsive economy that so many know it can be.

Sources: BBC, Forbes.