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Is China Entering a Recession?

Is it possible that China is entering or may be in a recession?

The very power that fought off the great recession of 2009 is itself heading towards crisis, experts fear. Furthermore, we should take into consideration that the fiscal stimulus that was provided by China during the great financial crisis, like a budget for infrastructure which helped China’s rapid growth of double figures, may not be possible if needed again.

The EU is facing the challenge of even more countries wanting to leave, with countries like Italy joining the crisis club. Debt-driven economies of the world'sglobal leaders have left a pessimistic picture for investors, economists and the public.

Economies across the globe are slowing down. With investment declining and trade stalling amid the US-China trade war, economic experts are predicting that this is not the worst of it. World leaders, whom are supposedly meant to be combatting this declining trend worldwide and should be able to avert the financial crisis, are the ones providing it the munitions required. The policies of leaders like Trump, Boris Johnson, and conflicts between Japan and South Korea are making the matter worse.

On the other hand China, the economy responsible for global growth for the last 20 years, is facing many issues of its own. The sinking retail sale and diminishing industrial production in China mean challenges are real and much more difficult to tackle than before. But what’s most disturbing is that the commercial banks are struggling to survive just like the US investment banks did before the financial crisis of 2009. These banks are being rescued by state-owned entities, which means they are being bailed out instead of going bankrupt. However, with rapidly increasing global debt, for how long will the government be able to help? Skeptics fear that eventually when a bank in China fails, it will create a panic with Chinese citizens with money on deposit, which currently sits at $27 trillion, more than double the total value of US bank depositors. However, the People's Bank of China refuses to admit that there is an underlying problem. According to PBOC, there is nothing that cannot be done to address the problem the banks face.

Looking at China's current financial trajectory, everyone fears the worst. But some argue that this slowing down in the Chinese economy is part of the plan. It is argued that the Xi administration, in an attempt to lay off the low value, high polluting manufacturing industries, is attempting to shut down the polluting manufacturing industries. Their hope is that the entrepreneurial abilities of the Chinese people will allow them to relaunch themselves into higher-value industries. If that is the case and China pulls it off, it would be a very important factor in the strengthening of the Chinese economy as a global leader. The Chinese economy still has a lot of room for growth since many parts of the country lack access to high-end technology.

The ability of China to heal the economic crisis should also not be ignored. China is providing much-needed support to economies worldwide. Such is the case of Fuyao Glass, who built a new facility in an abandoned General Motors facility. Think about that: General Motors, the great American company, laid off its employees and closed its factory. What happened next was that a Chinese company brought the people back to work. 2500 Americans were given new jobs in the same facility because of this Chinese investment.

Achilles Heel

The most disturbing problem for China is the corporate debt to GDP ratio, which stands at 250%. The rising median age in China and the shrinking labor supply along with corporate debt can contribute towards the economic recession in China. But much of this debt is domestic which means it cannot be impossible for the decade’s most efficient government to manage the debt internally. This is exactly what the Chinese authorities have done so far. The Chinese investment in Africa’s manufacturing and power sector also helps to solve the diminishing labor supply issue. These measures seem to be taken in the right direction and could prove everyone wrong about the Chinese economy but unfortunately, if the government fails to deal with the problems, it will quickly become apparent to everyone how relevant China is today.