China's economy continues to plummet as the forces behind the nation's previous dynamism are weakening. With their increasing ageing population, a limited labor force can be contributed to their sluggish financial growth.
Despite facing a major issue in China's economy, Chinese President Xi Jinping emphasized that the nation's frugality is still operating within the proper range. However, many economists are profoundly skeptical about China's official economic data and believe that the true figure is a good deal lower, BBC News noted. And since all the previous strong growth and technological gap have narrowed, the scope for rapid gains has been limited.
Investment is also a considerable factor of growth because it increases the productive capacity of the economy. However, China's investment level is already excessive since it diverts resources from other sectors of the economy including household spending. And if a nation over-invests, experts say that an increasing number of projects are likely to be economically inefficient.
With China's sluggish economy, financial markets are worrying whether the nation's transition will be a smooth one or China will suffer a hard landing, which is either an abrupt slowdown or a recession. Because of this, financial experts warn of a global recession possibility since China is one biggest economy in the world, accounting for 17 percent of global economic activity.
While the U.S. economy is almost as big, it is not rapidly growing. Thus, China's impact on global growth is larger and so is the potential contribution it can make to increased demand for goods produced by other countries.
"We believe that there is a high and rising likelihood of a Chinese, emerging market and global recession scenario playing out," said Willem Buiter, chief economist at the giant financial firm Citigroup, formerly of the Bank of England and the London School of Economics.
For the world economy, there's a 40 percent chance of a moderate recession, with a 15 percent chance of a more severe downturn and a financial crisis.
Aside from China's sluggish economy, there's also a debate over the nation's strictly business model for tycoons, The Strait Times noted. And a fiery debate has been ignited around one of Asia's richest businessman, Li Ka-shing. As per financial analysts, Li's portfolio reflects an ideological divide over the Chinese economy.
In spite of several predictions that China's economy will push the global economy into a recession, Wall Street Journal reported that a top U.S. financial diplomat, Nathan Sheets, has a positive view of the world's second-largest economy.
"We'll see growth this year and next in the seven-ish range," U.S. Treasury undersecretary for international affairs and former Federal Reserve top international expert Sheets said. "China won't face a crisis. It won't be a severe slowing of growth."
If Sheets' forecast were true, it could upturn the commodity-reliant economies suffering from a major collapse in prices and demand, though likely not soon.
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