China had recently announced a package of billions of dollars to get its economy back on track. But according to initial indications, it does not appear to have any significant impact. This is happening for the first time in the last 3 decades that foreign investors are withdrawing their money from China.
According to statistics, in the third quarter this year, foreign investors have withdrawn a huge amount of $ 8.1 billion from China. In this way, foreign investors have withdrawn funds worth $12.8 billion from China this year. This is the highest amount withdrawn by foreign investors since 1998. It is estimated that if the situation does not change, we may see an annual net outflow of FDI from China for the first time since 1990.
In fact, China’s economy is facing the biggest recession since the 2008 financial crisis. Now the return of Donald Trump to America is going to be very costly for China. In his election speeches, Trump had talked about imposing up to 60 percent import duty on Chinese goods. If Trump fulfills his election promise, China’s situation could become even worse. Dragon’s debt-to-GDP ratio had reached 366 percent in the first quarter. That means there is 3.66 units of debt burden on one unit of China’s GDP.
Even during his first term, Trump had imposed import duty of up to 25 percent on Chinese goods. Experts say that now the difficulties for China may increase in Trump’s second term as President. IMF has already reduced China’s growth forecast. According to IMF, the Dragon’s economy will grow at the rate of 4.8 percent this year, while the Jinping government has set a growth target of 5 percent. Which is expected to be 4.5 percent next year.
It is feared that China may also face a crisis like Japan in which it has been stuck for many decades. The stagnation that occurred in Japan due to the stock and property bubble burst in the 90s continues to this day. Now China, which has the status of the world’s factory, is also forced to face similar challenges. The world’s second largest economy, which accounts for about one-third of the country’s economy, has been facing a real estate crisis for many years. The impact of this crisis is also being seen on the banking sector due to which there is a danger of the entire Chinese economy sinking. Unemployment is increasing in the country and people are afraid of spending money due to the fear of recession. In such a situation, there is a fear that like Japan, China may also get trapped in economic slowdown.
To overcome this situation, China will have to increase consumer demand. At present, China is focusing only on export and investment based growth which is keeping the country on the radar of external shocks.