As the world continues to grapple with the impact of COVID-19, attention has turned to China’s economic recovery. Maersk, the world’s largest container shipping company, recently shared their insight into the situation and unfortunately, it seems that China’s economic rebound is slower than hoped. In this blog post, we’ll take a closer look at what Maersk had to say and explore why this news could have significant implications for global trade in the coming months. So buckle up – there are some interesting insights ahead!

The Chinese Economy

Since the global financial crisis erupted in 2007, China has been one of the few countries to avoid a full-blown economic recession. In spite of this, the country’s economy is still considerably smaller than those of its industrialized peers. The slowdown has been attributed to a number of factors, including internal weakness and overcapacity in key sectors.

In 2013, growth in China again slowed to 7.5 percent – well below the official target for 8 percent – as exports continued to suffer from weak foreign demand and a slowing global economy. However, 2016 saw signs that the Chinese economy was stabilizing, with growth returning to 7.7 percent and market confidence beginning to recover.

The recent slowdown is largely attributable to domestic factors such as slower investment and industrial expansion; however, there are also external risks that could derail the recovery. For example, if global trade tensions persist or pullback in overseas investment triggers a wave of defaults by state-owned companies (which would weigh on domestic spending), then growth could be derailed altogether.

Nevertheless, while there are certainly some challenges ahead for China’s economy, it appears that 2017 may see a more solid performance overall than anticipated at the start of the year.

The Role of the Government

In his first annual report for 2016, China’s Premier Li Keqiang said the country’s economic growth has been slower than expected. He attributed the slowdown to weak global demand and domestic policy uncertainties.

According to the National Bureau of Statistics, China’s GDP grew by 6.9% in 2016, down from 7.5% in 2015 and well below Beijing’s target range of 7.5%-8%. The slowdown was most notable in the industrial sector which contracted by 1.9%. Some economists have blamed these developments on a cooling property market and stricter regulations on private investment.

On June 19th, Premier Li Keqiang delivered a keynote speech at the World Economic Forum Annual Meeting held in Davos, Switzerland where he reaffirmed that China will maintain its economic development targets of mid-to-high single digits for the next five years. He also announced that China would open up access to its financial sector and increase foreign investment opportunities in areas such as clean energy and new technology products. These moves are aimed at cooling off the overheated property market and incentivizing innovation while still ensuring state control over important sectors of the Chinese economy.

Issues Affecting the Chinese Economy

Since the economic meltdown in 2008, China has undergone a dramatic transformation. The country has become one of the world’s leading economies and its citizens have enjoyed unprecedented prosperity. However, the Chinese economy is still not immune to external shocks.

The global recession posed a significant challenge to the Chinese economy. Exports fell as countries worldwide reduced their demand for Chinese goods, while domestic demand weakened because of high inflation and a deteriorating housing market. In 2009, China’s GDP contracted by 9 percent, marking the worst performance of any major economy in that year.

Despite these challenges, China has made significant progress since then. The country’s GDP increased by 7 percent in 2010 and 6 percent in 2011. This expansion was fueled by robust growth in sectors such as services and manufacturing, as well as improved foreign investment conditions.

However, China’s economic recovery is slower than expected and this presents several challenges for Beijing. The main issue is that export growth has slowed down more than expected due to weak global demand. This has particularly impacted the exports of commodities such as coal and iron ore, which are key contributors to China’s GDP growth. Additionally, inflationary pressures are rising faster than Beijing had forecasted and this is crimping household spending power and investments across various sectors of the economy (including real estate).

While there are some signs of improvement (e.g., housing prices stabilizing), sluggish export growth and rising prices are taking a toll on Chinese households’ disposable income levels and may

Maersk’s Analysis of the Chinese Economy

Maersk’s Analysis of the Chinese Economy

China’s economic recovery is slower than hoped, with some indicators showing a slowdown in activity even as the government continues to implement stimulus measures. Maersk believes that despite improving sentiment and signs of stabilization, China’s economy will experience continued low growth through 2016.

The Chinese government has responded to concerns about economic weakness by implementing a raft of stimulus measures, including an easing of bank loans and affordable housing policies. This has helped to stabilize the currency and support commodity prices, although it may not be enough to offset underlying structural weaknesses in the economy.

In its latest report on China, Maersk finds that:
-Growth momentum is moderating; while activity appears to have stabilised somewhat recently, we believe this is only a short-term reprieve as underlying weaknesses persist
-External demand remains weak and corporate debt levels continue to increase rapidly

The Outlook for the Chinese Economy

China’s economic recovery has been slower than hoped, with the country’s gross domestic product (GDP) growth at 7.5% in the third quarter of 2016, down from 7.7% in the second quarter and 8.1% in the first quarter of the year. The slowdown follows five straight quarters of double-digit growth, raising questions about Beijing’s ability to keep its economy growing at a rate that will allow it to meet ambitious targets set for 2020.

One reason for the slowdown is that domestic demand remains weak, despite a significant stimulus package given to businesses by Beijing in an effort to revive activity. Private investment also slowed from 2015 to 2016 as government debt levels increased and shadow banking systems became more regulated. Meanwhile, export growth has been restrained by lower global commodity prices and a strong US dollar.

The International Monetary Fund (IMF) expects China’s GDP growth to slow further to 6.5% this year before rising again to around 6.8% in 2018 and 2019 as deleveraging continues and infrastructure spending ramps up. This would still be faster than global average GDP growth but below Beijing’s original target of around 7%.

Conclusion

According to Reuters, Maersk has downgraded its China growth outlook for 2019 and 2020 citing slower than expected economic recovery. The container shipping company expects the Chinese economy to grow by 6.5% this year, 6.7% in 2020, down from their previous forecast of 7%. They attribute this slowdown to a number of factors including an ongoing trade war between China and the United States as well as domestic issues such as excessive credit growth and property bubbles.