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Reshaping China’s economy: Does China’s economic slowdown matter?

At 6.6 percent GDP growth, the world’s once fastest growing economy witnessed its slowest annual pace since 1990 in 2018.

There are a handful of reasons to explain the slowing trend of China’s growth. One such factor can be seen in the clear blue skies above Beijing, where people are now breathing arguably the cleanest air in a decade.

But five years ago, the thick and toxic smog choked the Chinese capital for much of the year, especially during winter.

To find out what caused the drastic change in Beijing’s air quality, I visited a place 200 kilometers away from the city.

In neighboring Hebei Province, which produces a quarter of the country’s total steel output, weeds are growing outside the Zhaochuan Iron Factory, a now rusty abandoned iron mill.

At its peak, the blast furnace inside the factory could churn out 680,000 tons of iron every year. But in 2016, the fire died out, and everything here came to a screeching halt.

I met Fan Chao, the former manager of the iron factory, who told me that the factory used to have 600 workers but still struggled to survive because severe over-capacity in China’s steel industry put a squeeze on profits at the time.

“Then the government launched plans to reduce emissions, overcapacity, and energy usage,” Fan said. “So in 2016 we shut down the factory at the request of the government.”

In fact, for local officials, GDP growth used to be the most critical criterion to gauge their performance. So closing down the factory was not an easy choice to make, because it spelled severe losses for the local economy.

Zhaochuan Iron Factory is among tens of thousands of polluting firms that have closed their doors across the country.

In the past three years, China cut its steel production capacity by 145 million tons, almost equal to the annual production of Japan and Germany combined.

From 2011 to 2015, the reduction of China’s paper-making capacity preserved nearly 600 million trees. In the same period, slashed coal production saved the earth from 11.4 trillion tons of carbon dioxide emissions.

However, for the central government, this sweeping campaign runs the risk of decelerating its economy. Then in 2018, China’s growth rate stood at only 6.6 percent, a figure not seen since 1990.

According to Jeremy Steven, Standard Bank’s chief China economist, the slowdown is partly due to the policy choice that has been made since 2016.

“Certainly, policies have intentionally reined in some of the drivers of growth from the past,” he said.

For China, although the 6.6-percent growth is the slowest in nearly three decades, it’s still a stunning growth rate when compared with other major economies around the world.

The other reason for the slowdown is that it’s part of a natural cycle.

“There’s no way this country can keep going above six percent for a decade,” said Professor Gong Jiong from the University of International Business and Economics.

In 2007, China enjoyed a booming GDP growth of 14.2 percent, more than double the rate a year earlier. Yet the total GDP in 2007 was only one-fourth of the economic output in 2018.

The increase in China’s GDP in 2018 was 1.46 trillion U.S. dollars, almost the size of Australia’s entire economy. Meanwhile in 2007 the increase in China’s economy was only 0.8 trillion U.S. dollars, roughly the GDP of the Netherlands the same year.

In a bid to explore new driving forces for its economy, the Chinese government has vowed to transform its economy to boost the service sector and high-end manufacturing, focusing more on efficiency and innovation.

But that transformation takes time.

In the latest government report, the country has set the growth target for 2019 at 6-6.5 percent — a new low.

While the continuing downward growth rate may shake some people’s confidence in China’s economic transformation to high-quality growth, Standard Bank’s Jeremy Stevens calls for patience.

“In reality, this is a dynamic economy. And so they always go gradually.”

While the old model is phasing out, new hope is rising, especially along the southern coast of China.

In the next episode, I will head south to the country’s wealthiest and most populated region, Guangdong Province, to see how people there are handling the economic transformation.
Source: CGTN

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