The Chinese Economy

By Andrew Billiter

The Chinese economy posted disappointing growth figures again earlier this week, continuing the trend of slowing economic growth reported since 2012.

In the first months of 2015, industrial production grew at an annualized rate of 6.8%—the slowest rate since the financial collapse in 2008—foreign investment grew by 13.9%, the lowest rate in a decade, and the property market saw steep declines as real estate sales dropped 15.8% from comparable periods last year. China’s economy, once driven by explosive growth, is feeling the effects of the loose-money strategies adopted by the country’s central bank to maintain growth after the crash in 2008. A 4 trillion yuan stimulus package was introduced alongside deep interest rate cuts by the People’s Bank of China, freeing up a tremendous amount of credit that was used overwhelmingly for infrastructure and construction. Years later, the boom left Chinese cities with scattered half empty or half-built skyscrapers, built with money from accommodating lenders to serve non-existent demand. Dramatic increases in bank loans left the country with a credit-to-GDP ratio of 150% in 2008, a figure that has since grown to a weighty 282%. With low domestic consumption not fueling enough demand to absorb the production created by years of expansive lending, the Chinese economy cannot shoulder its debt and will continue the cycle of slow growth—an unpleasant prospect ahead of the National People’s Congress annual session later this month.