China Growth Engine Declines

China is known for her production of machinery. This is the country’s major contributor to Gross Domestic Product. A small disturbance in the industry usually results in tremendous shaking of the entire country’s performance. Currently, it is evident that China’s economy is declining. Researchers have attributed the decline to the reducing domestic demand. However, economists have unanimously agreed that the downshifting is not as drastic as anticipated.

Unfortunately, the country’s performance also affects the global currency market especially the euro. This has made investors to look around for new investment places. By considering the stability of a dollar, United States has acquired an upper hand. This situation has forced the country to shift her market to developing countries especially in Africa while outsourcing her imports from Europe.

The other similar incident occurred towards the end of 2008, during the global recession. The Chinese responded to declining economy by increasing the lending capacity of the state owned banks. This resulted into some adverse effects like inflation and a very high level of bad debts. However, this time round, china faces a worse situation since the labor force seems to have reached a plateau and it is expected to begin shrinking. The government has taken some measures to curb the decline but just like in 2008, it seems to be increasing the money supply. In this regard the central bank pushed down the bank reserve requirements slightly to avail funds for new loans.

The country’s move to respond to the economy appears reactive instead of proactive. The country relies excessively on investing and exporting for growth of the economy while giving very little concern on domestic spending. The country’s real estate sector also appears to be one of the worst hit. In this regard, developers are now shifting from luxurious houses to the regular house referred to as social houses due to the complexity in financing them.