Slowing Chinese Economy

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Chinese currency

Silvia Diaz, News Editor

     After 30 years of continuous growth, China’s economy has begun to show signs of slowing down. As the country’s population ages and economy shifts from being manufacturing-centered to service-centered, financial analysts wonder how the world’s second-largest economy will get out of this slump.

     A recent Purchasing Manager’s Index (PMI) report of China’s private sector companies came in at 49.0, lower than the previous 49.4 mark score in February. A PMI score below 50.0 is a sign of sector contraction.

     China’s economy will also become more dependent on an older population in the coming years. The aging population has become richer and more urban but is projected to contribute less to the Chinese economy, as reported by Bloomberg Business. According to the National Bureau of Economic Research paper “Implications of Population Aging for Economic Growth,” the older population typically participated less in labor activities and added less to the savings rates. The paper continues to say countries can combat the effects of an older population by changing economic behaviors (e.g.: more female participation in the labor force) and policy reform.

     The central banks have started rolling out reforms in hopes of tackling China’s slowing economy. The most recent change is related to how much money banks must hold in reserve. The move is an attempt to make it easier for banks to loan money.

     China is also in the middle of shifting their economy to make the service and consumer sectors stronger forces. With the last 30 years of economic growth spurred on by constant manufacturing, the shift is worrying financial analysts. During the G20 Summit in February, China’s finance minister Lou Jiwei assured the world’s largest economies that the country could handle the pressures it is currently under.