Economists have been predicting that China is going to grow to be the world’s next economic superpower. However, some analysts speculate that those projections are inflated and that China’s grow is going to have to taper off. Lombard analyst Diana Choyleva is one of the skeptics.
China’s economy has been growing by more than 10% a year since the early 1980s. Economists have predicted that the growth will continue indefinitely and will eventually stand head and shoulders above the United States, the UK and all other world powers.
However, those predictions expected growth would remain fairly constant for the future years. New economic reports showed that growth unexpectedly stalled last quarter. Choyleva and other analysts say that this is an indication that the economy could be about to crash.
The drag on GDP growth is not the only thing analysts have to take into consideration. Other factors include the fact that exports are falling much more sharply than expected. After accounting for a decline in exports, the economy is shown to be growing almost entirely due to investments from the nation’s banks. Choyleva said that China’s banks are inflated and have skewed balance sheets, resembling those in the United States before the financial crash in 2008.
Choyleva and the analysts who share her opinion are in the minority. Most people are amazed by the potential the Chinese economy brings to the table. However, skeptics feel that the economy is just repeating the same pattern the United States and Europe went through before the financial crash. Three and a half years after the fallout, the United States continues to face economic stagnation and Europe is undergoing a serious depression.
According to the more pessimistic analysts, the best case scenario would be that China’s growth rate dropped by half. If China’s leaders failed to implement their policies appropriately, the country could face problems far greater than the world imagined.
One of the biggest questions is how China will be able to continue to grow in the coming years. A substantial amount of China’s growth came from debt-based spending from Europe and the United States. However, as those countries cut their debt levels and implement new austerity measures, the Chinese economy will start to feel the pain too unless it changes its policies for economic growth.