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Is The Chinese Economy Shifting?

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Is The Chinese Economy Shifting?

The Chinese economy is changing direction.

The economy used to rely on the private sector, services, and households, but the economy is now reliant on debt and state spending.

The Economy Now

The Chinese economy has reported signs of growth of 6.7% in the 2nd quarter in comparison to the same rate as last year.

However, the rate of increase was 6.4%, which is lower than expected.

The economic growth and the growth rate figures are usually closer together.

The SHCOMP index is currently valued at 3,054, which is an increase of +0.278% but the yearly return is down -21.27%.

The Chinese economy has grown faster than anticipated, however private investments have shrunk which indicates future weakness.

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The rate of inflation rose slightly in May and remained the same in June.

Inflation has remained mostly the same since October 2015 apart from a steep drop in February 2016.

The rate of inflation peaked between June and August 2015.

 

Chinese jobs market

The Chinese job market has been a concern for a while, and official figures are unhelpful due to the lack of change.

The unemployment rates peaked during the first half of 2015, however since then have remained steady.

The Government ratio of unemployment to job listings ratio fell to its lowest level since 2012 at 105 listings compared to 100 jobseekers.

Chinese wages have dropped to 7.3% down from 10% in 2013, and salaries predicted to fall further to 6.7% in 2017 with unemployment to climb to 6.5% later this year.

Other Chinese Markets

Chinese private fixed-asset investments have shrunk in comparison to a year ago.

The downturn in the private investment markets concerns since private companies account for two-thirds of economic spending.

The overall growth of fixed asset spending was +7.3%.

However, this is mainly due to government expenditures on infrastructures such as railways and airports.

Services grew 7.5%, the slowest quarterly rise in two years.

The downfall is a result of the decline in the financial markets following the stock exchange bubble last year.

The Governments investment in industrial activity has helped alleviate the gap left from the fall of the financial markets.

The property market has also shown signs of a slowdown.

Despite a growth of 7% for new residential construction and assets sales growth of 22%, overall these figures have a strike for the third consecutive month.

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China’s Future

The Chinese economy appears to be stuck where slow growth is stopping the economy from failing further.

The increases currently stimulated by the central bank and Government intervention.

Although any increase may seem like a good thing, this continued artificial stimulation of growth could potentially pave the way for an even larger decline in the future.

The future of the Chinese economy depends on the reaction of the Government to their increasing debt as well as the decline in private company investments and financial markets.

Although it is equally possible that the economy will either dramatically fail or prosper, the most likely scenario is that the Chinese economy will follow the trend of Japan, with a gradual decline.

The Chinese economy still has potential, and aggressive policy surrounding state-owned companies, protected service sectors, and the financial services could potentially break the trend and prevent China from following the same path as Japan.

Conclusion

The Chinese economy has shown signs of growth, although there are still causes for concern despite growth.

Growth has happened quicker than anticipated, mainly due to Government intervention.

Growth has also turned away from the usual sources.

Employment, services, private investment, and property markets are in slow decline, but Government activity and debts are increasing.

The economic growth rate of 6.7% alone would seem confident, but when you compare it to the growth rate of 6.4%, it is evident that there is something amiss.

The SHCOMP index has grown 0.278%, but the yearly growth is down 21.2%.

The rate of inflation has remained steady for nine months, with a slight dip in February 2016 and an increase in May and June 2016.

The unemployment rate peaked in early 2015 and after a dramatic drop in April 2015 and remained steady since then.

However, the jobs to job seeker ratio have fallen to its lowest level since 2012.

Wages have also fallen are likely to continue to decline in 2017 while the rate of unemployment is likely to increase.

There has also been concern surround the private investment, service, and property markets.

The private investment markets have shrunk while the ownership and service industries have slowed down is a comparison to last year.

The future of China is uncertain, and there is the potential for rapid improvement or decline.

The most likely scenario is that the economy will probably fall at a gradual pace.

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