What’s Wrong With China?

President Xi Jinping at David Cameron inspect models of the Airport City Manchester China Cluster

When China sneezes, the world catches a cold. UK economy is facing a ‘Cocktail of crisis’ as China’s economy slip into a lower gear….writes Karishma Saurabh Kalita 

President Xi Jinping at David Cameron inspect models of the Airport City Manchester China Cluster
President Xi Jinping at David Cameron inspect models of the Airport City Manchester China Cluster

Experts forecast a slowing down of the giant Chinese economy during 2016 as Beijing has girded up to implement its decision to scrap the almost four-decade-old one-child norm in the face of an ageing population. China watchers also saw Beijing continuing to flex its muscles in the South China Sea where it has disputes with neighbours Japan and Vietnam while Sino-Indian relations were likely to see an upswing with cautious movements in the strategic and security domain.

One of the biggest milestones in China’s history was the scrapping of the 37-year-old one-child diktat on October 29, 2015, and proposed implementation of a relaxed two-child principle later in 2016. The Communist Party of China (CPC) proposed this scheme in an attempt to balance population development and offset the burden of an aging population.

“This change was definitely important in the socio-political domain. The need to scrap the one child policy was absolutely necessary due to China’s growing aged population. But the demographic dividend will be only seen after 25-30 years and not in the near future,” noted strategic expert C. Uday Bhaskar, director, Society for Policy Studies (SPS), said.

A final plan for the change will be ratified by China’s top legislature in March after which it will come into affect officially. It has been estimated that it would raise the population from the current total of 1.37 billion to an estimated 1.45 billion by 2030.

“Data has shown that 64 percent of China’s total population still prefer the one child policy. The country will need an absolute majority for this to become a total success,” Professor Srikanth Kondapalli, Centre for East Asian Studies, Jawaharlal Nehru University, New Delhi, said.

China’s strength, its economy, took a beating when the yuan was devalued on August 11 by lowering its daily mid-point trading price to 1.87 percent weaker against the US dollar. The next day, it faced its second devaluation as it pushed down by another 1.62 percent against the US dollar. The devaluations resulted in Chinese exports getting cheaper and imports into China more expensive by that amount.

“China’s economic slowdown will persist even in 2016. In 2010, the gross domestic product (GDP) growth rate was a 10.8 percent. I expect at least a 6.5 percent rate or possibly even lower in 2016 as market confidence is decreasing. The yuan is coming back to its actual position, and even if it may not get devalued this year, the actual value will decline,” Kondapalli said.

According to Arvind Yelery, associate fellow, Institute of Chinese Studies, the country’s economic growth will also depend on how the country manages its excessive commitments that it has made to complete by this year in terms of trade, communications and science and technology. There is speculation that a lot of fluctuations will occur after the third quarter of 2016.

On December 1, the International Monetary Fund included the yuan in its Special Drawing Rights (SDR) basket that will make it the fifth reserve currency after the dollar, the euro, the pound sterling and the yen. However, the final inclusion will take another six to eight months.

China’s campaign of island building in the South China Sea has caused concerns among other regional contenders.

“China’s claim towards the South China Sea is a matter of muscular assertiveness. The complex geo-political situation here will remain,” Bhaskar said.

China claims most of the South and East China seas. Other countries in South East Asia have competing claims for the Spratly Islands, Paracel Islands and Scarborough Shoal, which are thought to have resource-rich waters around them.

According to Kondapalli, China will not agree to others asserting claim over the South China Sea. This tussle will continue and the issue will be clinched with military power.

China completed construction of two lighthouses in October and the government has reiterated that China’s construction completely falls within its own sovereignty.

In 2015, China also moved closer in terms of bilateral relations with South Asian nations including India. A golden moment in cementing India-China relations was when Prime Minister Narendra Modi visited China in May and inked a record 24 bilateral agreements, held summit level talks and signed 26 deals worth $22 billion.

“China and India have moved very cautiously in terms of bilateral agreements. The two countries will definitely engage more in the trade and economy sectors but when it comes to strategic and and security domain, issue will definitely prevail for China’s support towards Pakistan,” Bhaskar said.

China-Pakistan relations took a new turn with President Xi Jinping’s visit in April 2015 to Islamabad, where he envisaged investments worth $45 billion and signed 51 agreements. The investments were expected for the projects that constitute the China-Pakistan Economic Corridor.

“China-Pakistan relations will remain almost the same, but when Modi visited Islamabad on December 25, 2015, it did create a ripple effect. For China-India relations to flourish better, political investments are of the utmost importance,” Yelery said, adding the economic front looks very optimistic as China will look to compete with the already existing and successful Japanese investments in India.