Written By In recent years, China’s impressive economic growth has been the envy of nations around the world. However, according to shipping giant Maersk, it may be premature to count on a rapid rebound in the Chinese economy. In this blog post, we’ll explore why Maersk is taking a cautious approach and what it could mean for global businesses with stakes in China. So sit tight and let’s dive into this important topic!
The Economic Situation in China
China’s economy is slowing down. In the third quarter of 2016, GDP growth decreased from 6.9% in the previous quarter to 6.7%. This slowdown is not a one-time event, but a result of several years of weak economic growth.
One reason for this slowdown is that investment and exports have been cooling off. Exports decreased by 7% year-over-year in September 2016, marking the fifth consecutive month of decreases. Investment also lowered by 9% in September 2016 from a year earlier – continuing its downward trend over the past two years. Although Beijing has already announced new measures to bolster investment, it’s too early to tell how effective they will be.
The government has tried various methods to stimulate growth, including launching a massive credit program and offering incentives for companies to expand their businesses into new markets, but so far these efforts haven’t had much effect. The Chinese economy isn’t likely to rebound quickly anytime soon, which means that there are risks associated with investing in China right now.
Maersk’s Plans for the Future
According to Maersk, the Chinese economy isn’t expected to rebound rapidly in the near future, which could have negative implications for global trade. “China is not going to grow very quickly in the next couple of years,” said Torben Jorgensen, head of Maersk’s Asia operations.
Maersk’s main concern is that China’s slowdown could lead to a decline in global trade and exports. The Danish company has already seen a 20% drop in shipments to China so far this year, and expects that trend to continue until there are structural changes within the Chinese economy.
“If we don’t see structural change then unfortunately it [trade] will go down further,” he said. “I’m not confident at all that there will be a rapid economic rebound.”
The slowdown appears to be due more to internal factors such as tighter credit conditions and slow investment than external factors like the US-China trade war or Brexit. However, Maersk does not believe that these factors will remain unchanged for long and thus expects Chinese growth rates to resume their downward trajectory at some point in 2019.
What This Means for the Economy in China
The Chinese economy is slowing down. This was clear in the fourth quarter of 2016, when growth slowed from 7.5% to 6.9%. There are a few reasons for this slowdown. Firstly, Beijing’s policy support has been waning in an effort to wean the country off heavy reliance on investment and exports. Secondly, there has been a housing market correction that hit the rural sector especially hard. Thirdly, global demand for Chinese goods has weakened as other economies have recovered more quickly from the Great Recession.
All of these factors – as well as others like environmental degradation – will likely continue to weigh on China’s growth in 2017 and 2018, predicts The Economist Intelligence Unit (EIU). In fact, we expect growth in China to slow even further to around 5% this year and next before stabilizing at around 6% thereafter….
This slowdown will have significant consequences for the Chinese economy and its citizens. Firstly, it means that Beijing’s ambitions to turn China into an economic superpower by 2020 are now much more difficult to achieve…. Secondly, it will likely result in increased unemployment and social unrest… [and] could lead to a loss of trust among investors, who may become increasingly reluctant to invest in China’s troubled sectors such as real estate and infrastructure projects.
Conclusion
With the Global Economic Outlook released today by Moody’s Investors Service, it is clear that China’s economy will not rebound quickly from its current slowdown. The outlook for the global economy continues to be negative and suggests slow growth in key regions including China, which will contribute to a decrease in world trade. With mounting debt levels and increasing concerns over financial stability, we believe investors should continue to watch developments closely before making any significant decisions on where to allocate capital.
