China pursues economic transformation while heading off possible global recession

By Wang Jiamei Source:Global Times Published: 2019/8/21 17:58:40

Illustration: Luo Xuan/GT

Warning signals are flashing. In the US, the yield on the benchmark US 10-year Treasury note fell below the two-year rate, a bond market phenomenon that has historically heralded a brewing economic recession. And the US is not the only major economy facing a possible recession. Germany, the UK and Brazil are all seeing signs of trouble. Germany, the world's fifth-largest economy, just reported that its GDP shrank by 0.1 percent in the second quarter. 

In fact, the world economic outlook is bleak at this moment. The IMF last month slashed its forecast for global growth to 3.2 percent for 2019, the weakest gain since 2009.

These days, there have been lots of discussions as to how this round of global economic recession could come. Many believe the escalating China-US trade war is an important factor slowing down the world economy, and some even go further to conclude that a China recession could cause a world economic slowdown, as reduced Chinese purchases may mean reduced revenues for business around the world.

Such a judgment is obviously a big mistake. For starters, the Chinese economy isn't poised for a recession at all. After reporting 6.4 percent in GDP growth in the first quarter of 2019, the Chinese economy grew 6.2 percent in the second quarter, its slowest pace in more than two decades. While China's economic growth rate has indeed slowed when compared with the past, it is still biased to say a recession is approaching. If you look at Chinese data in the context of the increasingly severe bigger picture, the Chinese economy is actually outperforming all the major economies in the world with its, at least, 6 percent growth. The slower GDP growth may only show that there is certain pressure facing the economy due to some international factors and China's ongoing economic transformation. 

It should be made clear that the Chinese government no longer sees the pursuit of economic growth as its top priority. As long as the economic growth remains relatively stable and is moving in a reasonable range, the government prefers to pay more attention to promoting its economic restructuring, transformation and upgrading.

If some major factors, such as a global recession, really hit the Chinese economy hard, the Chinese government would definitely take measures, like rolling out stimulus policies and injecting liquidity into the market, to stabilize the situation in a timely manner. Simply speaking, the government is fully capable of guaranteeing that the Chinese economy achieves its growth target of 6.0 to 6.5 percent for this year, but that doesn't mean excessive easing for monetary policy would be an option as it often leads to consequences in the long run.

Since the Chinese economy is not itself going for a recession, it certainly cannot be the cause of a brewing global recession. After all, no country facing an imminent recession is able to maintain a growth of more than 6 percent.

Meanwhile, it should be admitted that the Chinese economy has been affected by the external environment, and the Chinese government has certainly recognized the growing pressure. The latest quarterly Politburo meeting, which was held at the end of July, pointed out that "downward pressure on the economy is increasing," representing a departure from the previous statement that "downward pressure on the economy exists."

But the central government is fully prepared for, and capable of, handling such pressure. On August 9, the People's Bank of China issued its second-quarter monetary policy implementation report, offering guidelines regarding the future monetary policy direction. Generally speaking, it will maintain its prudent monetary policy in the face of uncertain factors at home and abroad, make efforts to strengthen support for the real economy, and guard against major financial risks.

Just as the quarterly Politburo meeting said, despite the downward pressure, China would avoid using the property market as a means for short-term stimulus; it would rather tap long-term momentum and potential for economic growth through deep reforms, such as stabilizing the economy by boosting domestic demand.

In fact, Chinese authorities, from central to local, have been stepping up efforts to boost consumption. The central government rolled out a package of new measures to encourage consumption during a recent State Council executive meeting. Many cities like Beijing and Shanghai are planning to turn the night economy into a new growth point for consumption.

In short, China's stable economic fundamentals will not change and its domestic market will continue to grow, alongside the steady growth of its household income. All this will turn into strength for China to withstand a possible global recession, instead of becoming part of it.

The author is a reporter with the Global Times.


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