Despite witnessing growth in GDP, China's debt continues to mount

New Delhi, Delhi, IndiaEdited By: Palki SharmaUpdated: Jul 17, 2020, 07:20 AM IST

An employee measures a newly manufactured ball mill machine at a factory in Nantong, Jiangsu province, China June 28, 2019. Photograph:(Reuters)

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It was the first country to go into lockdown, the first also to come out of it. The virus was not a bolt from the blue for China-- anything but that.

Beijing has reported a 3.2 per cent increase in GDP for the second quarter of 2020 that is the April to June period.

Analyst had expected 2.5 per cent growth for this quarter but the Chinese economy declined 6.8 per cent during the first three months of the year. China exceeded the projections but the trends are worrying.

There is some good news though but that is for the global economy. China is the world's factory, the global manufacturer. China's economy is dependant on manufacturing. The number that China is projecting right now 3.2 per cent increase in GDP  is an indicator of the rise in global demand.

China's export and industrial production are moving ahead, the domestic market, on the other hand, is dead.

China's industrial production is up by 4.8 per cent and the global demand for goods has grown not by 4.8 per cent but it has grown.

According to experts, China is overproducing for reasons best known to Beijing due to domestic demand. China's retail sales in Q2 has fallen by 1.8 per cent. So back at home, the Chinese are not buying despite all of Beijing's promotional measures.

Earlier, WION had reported how the government of China was handing out coupons to its people so that they would buy goods and services. However, the sales campaign has failed.

A fall in retail also displays a lack of confidence. The Chinese are not confident to spend right now because for them, it is not yet business as usual.

The job losses in China are not to be forgotten therefore it is not surprising that people are not investing. China's fixed-asset investment has fallen by 3.1 per cent. 

However, China averted a recession. It was the first country to go into lockdown and the first also to come out of it. The virus was not a bolt from the blue for China.

China was prepared for the pandemic and it should not go to town blowing its trumpet with the GDP numbers. Instead, here's what it should do. 

First, companies are diversifying their manufacturing. In other words, they are avoiding over-reliance on China and are preparing to move out. According to one survey, 2/3rd of large US corporates want to move their manufacturing from China to Mexico in the next two years.

Second, the US-China trade war is far from over, also, China's GDP may be rising but it is only a matter of time before it either stagnates or plummets. It is because China is sitting on mounting of debt. Beijing's total debt is 317 per cent of its Q1 GDP which means, its banks are on the brink of collapse.

According to a report, the run to banks has already begun. It started with Hebei over the weekend, several customers rushed to banks to withdraw their money as Heibei announced a program to limit large transactions. The pilot project will soon include banks in Zhejiang and Shenzhen too.

The people are losing confidence in the Chinese banking system. It is worth $43 trillion dollars, 317 per cent of its GDP. China's GDP is around $14 trillion dollars.

River banks too are collapsing in China. There is mass flooding in several parts of the country. China has not released any data on the people affected or the lives lost.