Frontpage Insights: Fears of China's economic slowdown likely to impact the entire world, including the US

All is not well in China, the country with the world's second largest economy. The symptoms of recession like 2008 are being seen in the country. In the last two days, China has announced stimulus similar to the 2020 lockdown to boost the economy. The country's real estate index has fallen 82% in two years. The country is going through the biggest deflation since 1999. The unemployment rate has reached a multi-decade high. Tensions with the US are at a peak and the stock market is deteriorating day by day. The question here is that China is leading the global economy towards recession?

The biggest problem in China's economy is real estate. It accounts for approximately one-third of the country's economy but has been battling a major crisis for the past several years. It started in the year 2021 when Evergrande, one of the largest real estate companies in the country, went under. Due to which, in the last two years, the real estate index of the country has decreased by 82% to the level of 2008. Due to sinking real estate sector, the banking sector is also threatened. The reason is that Chinese banks have invested heavily in the real estate sector.

China is experiencing the longest deflation since 1999. In 2008, the country experienced five consecutive quarters of deflation but this time it has gone beyond that. The whole world is suffering from inflation, but in China, the opposite Ganges is flowing. Deflation is considered worse than inflation. It reduces the price of things. It is usually associated with a reduction in the supply of capital and credit in the economy. That is not a good sign for the economy. Why would you buy today if you already know that the price of things is going to drop tomorrow? This is how the economy stagnates.

Unemployment in China is at a multi-decade high. Production is also limited and construction activity has stalled due to a slowdown in the real estate sector. Consumer demand is also weak. Chinese consumers are behaving as if there is a recession in the country. The Central Bank of the country has recently made several announcements to breathe life into the economy. Reserve requirement has been cut by 0.5%. The 7-day RRP rate has also been reduced by 0.2%. Mortgage rates have fallen and $142 billion has been poured into banks.

A widespread slowdown in China would affect the entire world This is because China has been the engine of the global economy for the past three decades. Goods from China go to markets around the world. Many American and western companies are doing good business in China. But the business of these companies will be affected by the slowdown in China. The possibility of a break in the Chinese economy like that of Japan is being expressed. This is why fears of a slowdown in China are a threat to the global economy.