Is china slowing down...

Until the 75’s, China lived in a world of isolation. Deng Xiaoping opened up the economy, welcoming foreign trade. Since then, China has witnessed double-digit growth rates led by its export-oriented economy catering to the world as a global manufacturing hub. World reached out to China and made it a manufacturing hub for their products. This transformation led a 30-year bull run in Chinese economy. 

Until came,Global financial crisis of 2007 causing export-oriented economy to realization that it depends heavily on exports and has not focused on its own consumer spending. After the crisis, the government acted by giving out stimulus packages leading to over-capacity building in infrastructure and construction. This stimulus had a short-term boom.

The weak demand in developed economies of US and Europe, which are China’s main export markets, has caused this transition. From 2011-15, the GDP contracted from 10 percent to 6.9 percent, seeing a shift in Chinese economy from export oriented to consumer oriented. With the share of industrial sector to GDP falling to 40% in 2015 from 49% in 2007, while the service sector gained 8.2% from 42% in 2007. Transition is also imminent in employment growth; with rate in service sector gaining more than 8 percent, while that in manufacturing gained only 3 percent. The long-term average of service PMI has also been above 50 percent (at 52.8 percent), implying that the service sector is expanding while manufacturing PMI has remained below 50 percent (at 49.1percent), implying its contraction. The annual retail sales have risen from 9.4 percent to 11.3 percent from 2011 to 2015, signaling rise in consumer spending.

In 2012, the World’s largest ever IPO, Alibaba hit the markets. This conveyed the shift of Chinese economy from manufacturing to service economy, signaling the growing scope of consumer based economy.  In 2014, the cost of transaction on Alibaba was more than that of both Amazon and Ebay combined.

The Chinese economy is witnessing a shift towards a more sustainable growth based on consumer lead economy. Exports are expected to decline during this transition, while shift to consumer based economy is looking stable and optimistic. Thus, the Chinese economy is making a transition after a three decade long dependence on manufacturing.