ANALYSIS

GDP growth - 6.5 - 7%

3 straight quarterly growth figure of 6.7% ( of 2016 1st to 3rd quarter)

credit figure in Sept year-on-year comparison : rose 11.3%

Bank issued loans rmb1.2tn in Sept ---- Mortgage loans about 50% 

 due to property prices continuing to bubble over in no. of cities



Real GDP v Nominal GDP

 Nominal GDP do not accurately show production of goods in country. Production calculated in current prices. This means the change in price of the products will affect the nominal GDP value

hence real GDP is use for year-on-year comparisons.


Outstanding mortgage loan is = 25% of GDP, compared to 15% of GDP 5 yr ago

Corporate lending has increased by more than 13% in Sept



Graph 2 --- Rise in mortgage loans --- Fall in cost of borrowing


Int rate on mortgage showing a declining trend over the years, this means that the cost of 
borrowing has decreased. Hence, more companies/individuals become more willing to borrow from banks, resulting in an increase in the amount of investment. 
 
This can be observed in :  
 -> increase in borrowing for mortgage loans of about 50% of loans by the bank 
( due to property prices bubble continuing to increase) 
  
 -> companies and firms increase their lending for own purposes. 
 

( INSERT INVESTMENT DEMAND CURVE ) ---- INT RATE DOWN, LVL OF INVESTMENT UP




Introduction of Fiscal policies??

State Council approved a "debt-for-equity-programme" intended to relieve some of the financial strain on struggling companies


more than 20 municipal gov introduced emergency measures to cool overheated property markets.

 

Other than unemployment rate increasing, GDP has also been decreasing. Based on the graph in the article, China’s GDP is expected to decrease from 5.7% to 5.03% in 2016 to 2017 and GDP has been falling since the year 2011. The reasons for the decrease in GDP are due to reasons such as worldwide economic slowdown and internal factors such as inefficient allocation of capital by state-owned Banks and well known ticking debt-bomb. 

 

Firstly, the Chinese’s Government intend to curb this situation by focusing on future-oriented industries — for example, investing in renewable and green energy to avoid an environmental and social catastrophe whose consequences may be devastating on a very large scale. China must avoid short-term strategies and work on long-term ones that will strengthen China’s economy over time, instead of patching it up whenever a crisis arises.

Secondly, by taking steps abroad which include exporting its labor force overcapacity to work on the many infrastructure projects in Central Asia and Africa

Thirdly, China can improve the needs of the Chinese such as the working and living conditions in order to increase income over time. China have to stop hiring millions of young Chinese every year in SOEs as it is inefficient.

However, the most important action the Chinese government needs to do is domestic market stimulation. China have to capitalize on its domestic market as it is one of the biggest in the world due to its population in order to improve both their knowledge and the quality of their products as well as innovation and education for local and foreign companies. This can be done by working with universities and professional centers to close the gap of the level of skills between people.

This shows that if the economy is undergoing a downturn, the government has to spend in order to get the wage spiral flowing so that consumers will be able to spend from their income earned (Expenditure) and it can be matched against the income earned.

(In economy, income earned = expenditure)  

However, this economic growth is said to be unestablished and will not last long as this recovery is on borrowed time given and China is just busy putting out forest fires by flooding the market with cash and negotiating defaults. As the boost from the policy stimulus (Faster credit growth and property market boom) begins to wear off, the economy is set to be slowing again.

This is because a slip in the industrial production has lead people to think that there is a liquidity trap in China. Even though there is a huge increase in lending as it is expected that People’s Bank of China to leave interest rates unchanged until year-end while focusing on managing the liquidity in the money market, corporates aren’t spending money despite the government’s push to get enterprises to invest.

The full year growth of GDP for 2016 is predicted to be lower than last year’s growth rate which is already the slowest in 25 years. 

However, the figure is in line with Beijing’s growth target of 6.5%-7.0% this year.

As China is known to be the world’s second-largest economy and the second-biggest importer of both goods and commercial services, China’s poor economic performance would have a big knock-on impact around the world.  
The slowdown is growth has been the factor of the decrease in prices of oil and other commodities.

This 6.7% of growth in GDP seemed to be considered as growth in nominal GDP due to reasons such as an increase in  government spending (especially in investment of housing) and rocketing prices of the stock market.

This shows that the growth is due to an increase in the price of products in China and it does not necessary mean that more goods and services are produced in the country.