China needs confidence amid economic challenges
It seems China comes to a crossroads every ten years. In 1988, commodity prices surged. Private enterprises experienced an unprecedented challenge in 1998 after the Asian financial crisis led to a depressed market. In 2008, the manufacturing industry in China took a hit from the global financial crisis, and Chinese policymakers adopted stimulus measures to keep the Chinese economy growing.
Now, halfway through 2018, China once again stands in front of a crossroads, with both economic and diplomatic uncertainties.
China should have confidence to turn the situation around as in previous times.
The international environment will be full of uncertainties in the next few months. It is difficult to picture the future of China-US bilateral trade relations if the US imposes more punitive tariffs on Chinese products.
The domestic economy has faced side effects from the deleveraging. It is possible that the government will have to adopt a more active monetary policy to boost the economy. Thus, the extra money in the market will have to flow into certain areas. It would be challenging for the government to continue stabilizing housing prices and stop money from flocking into the housing market like it did in 2008. Whether the already effective deleveraging will suffer a setback is still another question.
The stock market is also causing concern, with the A shares struggling to hurdle the 3,000-point mark. While the stock market appears less attractive to investors, the household savings rate has seen warning signs of decreasing. According to data from the People’s Bank of China, residents’ total bank deposits decreased 1.32 trillion yuan ($190 billion) in April. Other investment alternatives such as trusts, funds, insurance and peer-to-peer online lending platforms each have their own risks.
The exchange rate against the US dollar slipped in June and continues to fall. Instead of a fluctuation, the yuan’s appreciation against the US dollar, the euro and the pound – which has lasted a couple of years – may be coming to an end.
Structural adjustment and deleveraging are imperative tasks and both have made some headway so far. However, carrying on both at the same time against the economic headwinds indeed puts pressure on enterprises. On the one hand, it is hard for them to get loans from the bank. On the other hand, they also face shrinking domestic demand and higher hiring costs.
The fundamental economic situation has affected entrepreneurs’ investment decisions and confidence. In the upcoming half year, many people will be holding their breath for the Chinese economy. Will China be able to pull through like it did in 1978, 1988, 1998 and 2008?
The past four decades have shown that China’s endurance and resilience are beyond people’s imaginations. Time and time again, the solid socialist model is the driving power to maintain China’s revival and vibrancy against hardship. The darkest night often comes right before the dawn of a major reform.
Just like the reform of the early 1990s following surging commodity prices, the “three carriages” of investment, exports and consumption after the 1998 financial crisis, as well as the 4-trillion-yuan
The problems within the Chinese economy have to be solved. The road may be bumpier in the next half year, but that is not necessarily a bad thing. Changes always come from the hard times, and challenges will help the Chinese economy grow stronger.
stimulus package and economic upgrades in response to the 2008 global financial crisis, the challenges in 2018 may also be the opportunity for the next regenesis.
In this round of the economic cycle, the possibility that a sudden collapse will happen to the Chinese economy should be ruled out. In the last few years, China has developed a new middle class, which is driving entrepreneurship.
Entrepreneurs from the generations born after the 1980s and 1990s may find it difficult to repeat the business models of the likes of Baidu, Alibaba, and Tencent, but they can focus on making small products exquisite. This is the indigenous and innate vitality of Chinese industries.
The problems within the Chinese economy have to be solved. The road may be bumpier in the next half year, but that is not necessarily a bad thing. Changes always come from the hard times, and challenges will help the Chinese economy grow stronger. The author is a Hangzhoubased economic commentator. bizopinion@globaltimes.com.cn