Featured # Business Headlines | 3 years ago

Debt Propels Potential Chinese Economic Recovery

Despite experiencing the nations slowest economic growth in over six years, the Chinese economy is beginning to appear as if it is in recovery. This new found optimism is due to a new round of debt that is seemingly causing factory related activity, investments, and household spending to rebound. Economists agree that this news may appear optimistic in the short term, but the data may not be healthy for the world’s second largest economy in the big picture. Using increasing debt to cause near-term problems is eerily similar to China’s solution used during the financial crisis. Beijing, at the time, decided to lift the economy out of recession by providing an incredible amount of stimulus, instead of acting more practically and reforming economic stricture.

According to official data that released on Friday, China’d GDP grew at a yearly rate of 6.7% in quarter one of 2016. This growth is, as expected, slightly lower than the growth seen in quarter four of last year, 6.8%/ Yet, other economic indicators were above their original projections, such as new loans, sales in retail, industrial production, and investment in fixed assets.

There is much disagreement about what these conflicting statistics are indicative of. Some analysts believe that this is proof that the economy has bottomed out from its sluggish pace and has no where to go but up, while others point to the nation posting similar numbers in quarter one of last year before experiencing a major stock market crash. Raymond Yeung, official from ANZ, looked at recover industrial output and investments in fixed assets when he said, “What this shows is a stabilisation of the old economy.” Yeung continued, adding, “I would still be a bit cautious about headline growth… last year’s 6.9 percent figure was underpinned by a massive contribution from financial services, and the strong loan and credit growth recently and the recent resumption of IPO activity suggests this could still be a big contribution.”

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