Five reasons why China's economy is in trouble

October 5, 2022 3:36 pm

[Photo Credit: BBC News]

China’s economy is slowing down as it adapts to a punishing zero-Covid strategy and weakening global demand.

Official growth figures for the July to September quarter are expected next week – if the world’s second-largest economy contracts, that increases the chances of a global recession. Beijing’s goal – an annual growth rate of 5.5% – is now out of reach although officials have downplayed the need to meet the target. China narrowly avoided contraction in the April to June quarter. This year, some economists do not expect any growth.

The country might not be battling steep inflation like the US and the UK, but it has other problems – the factory of the world has suddenly found fewer customers for its products both domestically and internationally. Trade tensions between China and major economies such as the US are also hampering growth.

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And the yuan is on course for its worst year in decades as it plummets against the US dollar. A weak currency spooks investors, fuelling uncertainty in financial markets. It also makes it difficult for the central bank to pump money into the economy.

All of this is happening at a time when the stakes are especially high for President Xi Jinping – he is expected to secure an unprecedented third term at the Communist Party Congress (CPC) which begins on 16 October.