China’s slowdown
China’s economic growth slowed to a 24-year low of 7.4 percent last year. The 2014 performance was the slowest for the world’s second-largest economy since 1990, when growth dipped to 3.8 percent in the aftermath of the Tiananmen crackdown on pro-democracy protests. This also marks the first time since 1998 that China has failed to meet its official full-year target of 7.5 percent.
China’s growth has been in decline for four years in a row — from 10.4 percent in 2010 to 9.3 percent in 2011 and 7.7 percent in 2012 and 2013, respectively. What’s encouraging is that the Chinese economy grew 7.3 percent in the Oct.-Dec. quarter, up 0.1 percentage point from the market consensus of 7.2 percent, thanks to the oil price plunge and Beijing’s stimulus.
The 7.4 percent full-year growth seems not bad, given China’s slumping property market and export slowdown. Reactions to China’s slowdown are mixed. On the one hand, analysts positively evaluate China’s efforts to manage the pace of growth. On the other, Beijing is seen as falling short of its target. What’s clear is that China’s high-growth era has ended.
While it’s true that worries about China’s hard-landing have eased a bit, anxiety about China’s future lingers. China’s stock markets have taken a roller-coaster ride in recent days as if to reflect these uneasy sentiments. That’s because Beijing has no other option but to wrestle with its entrenched problems — the property market slump, high corporate debt exposure and overproduction — for the time being.
In his New Year address, President Xi Jinping said China has entered a “new normal” and called for drastic reforms. This means that China has clearly changed its policy stance toward slowing the pace of growth. All things considered, China’s growth deceleration was inevitable. Given this, the most important thing is how Korea reacts to these unstable circumstances.
China is Korea’s largest export market, accounting for more than one fourth of its total shipments. It’s needless to repeat Beijing’s strong influence on Seoul in almost all fields. The prospect Korea’s exports to China will expand significantly after the effectuation of their free trade agreement is still uncertain.
At a time when Korea’s downside risks in domestic consumption and investment become more apparent, China’s slowdown should be a wake-up call to our policymakers. But things don’t appear to be so.
Since the turn of the New Year, they have unleashed a torrent of investment and other economic packages, but most of them are merely rehashes of outdated policies.
The latest tax code brouhaha is nothing more than an example of this government’s incompetence and complacency. One cannot help but wonder if the incumbent administration can safely complete its remaining three years in power.