Initially due to the pandemic and now because of the geo-political crisis with Russia’s invasion of Ukraine, the supply chains have been massively disrupted and growth is hit.
These events are leading the whole world into the clutches of an economic slowdown at the moment. Inflation is at a decade high in several countries including the UK, US, Germany, and even India has been seeing soaring inflation for more than a year now. But, one leading economy is doing especially bad at the moment, and it has an impact on the entire world. The world’s second largest economy; China is on a downward spiral.
Not so long ago, the International Monetary Fund cut China’s growth forecast for this year to 4.4 per cent, which is below Beijing’s target of around 5.5%.
This is the lowest official GDP growth target for China in three decades and well down on the average 10% growth rate the country has enjoyed for nearly forty years. It is, in fact, the first time in forty-six years that the United States is going to grow faster than China.
Several reasons for this economic meltdown in China can be traced. The pandemic of course drew the first blood, then a series of events occurred in China and circumscribing the mainland that are projecting a global tectonic shift of economy from China.
The crevasse between the promise and reality in China’s illustrious market is reeking of apprehensions for foreign corporations.
Direct foreign investment in China from multinational companies dived as investors went pessimistic about the Chinese economy, for the indisputable reason that China is the inception point and has come out to be the undisguised emissary of Covid.
The annual growth target of 5.5% is increasingly slipping out of proportion adding that maintaining economic stability and preserving growth should remain the primary focus of china. The current Covid lockdowns in China’s big cities and business hubs have crippled their economy, forcing many manufacturing factories to shut down and causing supply-chain disruptions affecting the entire world. Apple has said that the supply chain disruption rippling out of China could cost the company between $4 billion and $8 billion in sales.
Besides Covid, the despondency towards Chinese economy from global investors spiked because of its stance on Russia’s war on Ukraine. The concerns at the global level have stirred up that China will act on its long aggressive intentions to invade Taiwan as well.
For the most part of 2021, the Chinese government cracked down on Chinese corporates. Regulators in Beijing went after Chinese corporate titans. The campaign wiped out a staggering amount of more than one trillion dollars of wealth. Global investors are spooked and they are withdrawing investments. More than eleven billion dollars were pulled out of the Chinese market in March this year alone. To add to this, the value of Chinese stocks is touching an all-time low. In one year the tech index which tracks China’s biggest tech companies has fallen by 45%. The redemptions from Chinese equity funds were at their highest since 2021.
China’s aggressive manoeuvres against India, Hong Kong, Vietnam and Taiwan have sent alarm bells ringing worldwide. China’s longstanding interest in becoming the regional hegemon and to be the dominant power in Asia is a well-known fact among nations across the world.
China’s time of hiding and biding is over. It is also ready to go to greater lengths to change the status quo in the South China Sea and Taiwan, so much so that it has given a clear warning to anyone who tries to come in between China and Taiwan. The blatant distrust of the world from China is inevitable, and companies will think of setting up shop somewhere else in coming years. India has a lot to gain here.
India’s reputation in the world has been extensively growing as a leader and is revered by nations. Not only is this, the recent developments in India that will enable it to reach the $5 trillion economy mark are also luring many multinational companies to come to India. It was just a matter of time for China to lose its loyalty as the global economic hub. The recent events have time lapsed the inexorable fall of the mainland’s kingdom of cards.
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