China had recently announced a multi-billion dollar package to get its economy back on track. But based on early indications, it doesn’t appear to have any significant impact. This is happening for the first time in the last three decades, as foreign investors are withdrawing their money from China.
According to statistics, in the third quarter of this year, foreign investors withdrew a huge amount of 8.1 billion dollars from China. Thus, foreign investors have withdrawn funds worth $12.8 billion from China this year.
China’s economy is not improving
This is the largest amount withdrawn by foreign investors since 1998. It is estimated that if the situation does not change, we may see an annual net outflow of FDI from China for the first time since 1990.
In fact, the Chinese economy is facing the biggest recession since the 2008 financial crisis. Now Donald Trump’s return to the United States is going to be very costly for China. In his election speeches, Trump had talked about imposing import duties of up to 60 percent on Chinese products.
Tension in China increased due to Trump’s return
If Trump keeps his election promise, China’s situation could get even worse. Dragon’s debt-to-GDP ratio reached 366 percent in the first quarter, meaning there is a burden of 3.66 units of debt per unit of China’s GDP.
Even during his first term, Trump had imposed import duties of up to 25 percent on Chinese goods. Experts say difficulties for China may now increase in Trump’s second term as president. The IMF has already reduced China’s growth estimates.
According to the IMF, the Dragon economy will grow at a rate of 4.8 percent this year, while the Jinping government has set a growth target of 5 percent. Which is expected to be 4 and a half percent next year.
A crisis like Japan’s can reach China
It is feared that China will also face a crisis like that of Japan, in which it has been stuck for many decades. The stagnation that occurred in Japan due to the bursting of the real estate and stock bubble in the 1990s continues to this day. Now China, which has the status of the world’s factory, is also forced to face similar challenges.
The world’s second largest economy, which accounts for about a third of the country’s economy, has been facing a real estate crisis for many years. The impact of this crisis is also being seen in the banking sector, so there is a danger that the entire Chinese economy will collapse.
Unemployment is rising in the country and people are afraid to spend money for fear of recession. In such a situation, there is a fear that like Japan, China too will get caught in an economic slowdown. To overcome this situation, China will have to increase consumer demand. Currently, China focuses solely on export- and investment-based growth, which keeps the country on the radar of external crises.
