A slowdown in growth in China?

Beijing said that the nation will grow at 5% in 2023. This sober target has implications for India and the world

The Chinese economy will grow at 5% in 2023, its government said on March 5. To be sure, the latest growth estimate is significantly higher than the expected 3% growth in 2022, largely a result of the self-inflicted economic damage of China’s zero-Covid policy. However, if one were to take a slightly long-term view of the data and exclude the pandemic year of 2020, Chinese growth was lower than 5% in 1989 and 1990. That the regime itself has set such a historically sober target raises a question of whether there is a voluntary growth downgrade in the world’s second largest economy. The answer, despite temptations to jump to strong conclusions, is slightly complicated. One, exports are a big driver of the Chinese economy, and at a time when the global economy, especially advanced countries, are facing a growth slowdown, it is natural that the Chinese economy will face some headwinds.

Under Xi Jinping’s leadership the Chinese regime has made it clear that it is willing to take a short-, even medium-term growth hit, to restrict demand from (what it sees as undesirable) sectors such as online gaming, tuitions and the real estate boom. (Bloomberg)

Second, under Xi Jinping’s leadership the Chinese regime has made it clear that it is willing to take a short-, even medium-term growth hit, to restrict demand from (what it sees as undesirable) sectors such as online gaming, tuitions and the real estate boom. While the rise of such sectors is deeply linked with China’s growing economic inequality (and also the frailty of some of its banks), it remains to be seen whether China’s attempts to restrain such sectors without damaging the larger economy will bear fruit. The third, the most troubling thought for the global economy is that China is increasingly coming to the conclusion that the geopolitical conditions which enabled its peaceful rise in the global order are increasingly atrophying and a conflict is inevitable. The rise in defence spending in the budget and the rhetoric on combat readiness is suggestive of that.

All three possibilities are bound to have implications for India. A moderately growing Chinese economy will keep commodity prices under check and prevent a worsening of the inflation problem. As foreign capital develops scepticism about China’s commitment to free markets, it will increasingly see India as an attractive destination for relocating its activities, especially in manufacturing. These two positive developments, however, could face a major challenge if the Chinese State turns more belligerent in the near future. Diplomacy and economic management must work in tandem to deal with the ongoing evolution of China.