As the world’ second biggest economy, analysts are constantly worried about the situation in China. The global economy has grown increasingly interconnected and any fluctuations that take place would definitely have an impact globally. According to the Treasury Department, 30% of the jobs created in the U.S. since the great recession were export-dependent. There is no doubt that a slowdown in China will seriously affect global growth, given the role the Chinese economy has played in recent years.
Recently, reports indicate that growth has slowed to 6.9 per cent in the third quarter of 2015, down from 7 per cent in the first and second quarters and according to the International Monetary Fund, China’s budget deficit topped 10 pc of GDP in 2014, and this year a budget squeeze is already emerging.
Since the start of 2015, the Chinese economy has been undergoing several turbulences. It started by a decision from People’s Bank of China, in august 2015, to cut the yuan ‘s reference rate against the US. Dollar by nearly 2%, leading to a drop in the value of the yuan in offshore trading. The decision was taken to fix distortions between the trading rate of the yuan and the rate it should have been at according to speculation. The International Monetary Fund, at that time, noted that the move could lead to a freer floating of the yuan.
However, it is significant to note that the step that the China’s government took to devalue its currency, was not taken to increase Chinese exports only; this step has to do more with the global currency. The yuan is actually related to the US dollar, when the dollar rise the yuan will be likely to rise. The aim is to steadily rise the yuan against trade weighted partners. Many experts see that all what China is doing today is gain truly competitiveness along with trading partners. The exact 2% devaluation keeps the yuan in line with trading partners’ currencies.
On the political side, Xi’s management might be facing some problems internally. First, Xi’s decision to build a national security council and economic affairs advisory body, to which he belongs, has built opposition against Xi from several policy makers. Furthermore, publicly canceling the unofficial Beidaihe summit was an obvious strike against former officials.
The main aim of Xi’s management is to fasten policy adjustment within China, but while do so, economic policies are be moving towards liberalization but the social policies are moving towards autocracy, which is creating a state of contradiction.
Aside from the turbulent Chinese economy, China’s environment has also taken a hit; air pollution significantly increased in Beijing. Pollution was up to 10 times higher than what is considered safe by the World Health Organisation. Citizens were asked to wear masks and stays indoor as much as possible.
On a different note, Chinese Ministry of Foreign Affairs, declared that before the end of 2017, there will be Chinese military ships by Djibouti ports. The decision came upon the African Chinese Johannesburg Summit held recently. The purpose behind having these military ships is safeguarding the Chinese ships which pass by Bab el-Mandeb Strait.
Within an international atmosphere full of speculations and forecasts, the spotlight remains on China, while it shapes the global economy.
