China’s Output Declines

            The Chinese manufacturing index called Caixin/Markit (PMI) fell short of predicted forecasts in August and then again in September. This survey comes out just a day after the Asian Development Bank said they are lowering their growth forecast for China, which is below the government’s intended target.

            The United States Federal Reserve not lowering interest rates was the first response to concerns of the growth slowdown in China. Janet Yellen announced that the Federal Reserve had planned to raise the interest rate, but began to pull back as the U.S noticed China’s weakening market. The was very smart of the U.S to pull back because the Chinese economy is accelerating in shrinking of production, which causes export orders to decline, and more people to be laid off and unemployed in the near future. China, one called a production conglomerate, is now shifting to an era of complete economic slowdown. In my opinion it is mainly due to the fact that there are still state-owned firms. State-owned firms are proven to be extremely less productive and inefficient. If China were to change their views and allow the people to have more say in the government rather than rich political officials, the Chinese economy would flourish once again. With a country that has continual political corruptness and an unstable infrastructure the only way to make change is through revolt.

            Although the Chinese economy is looking more dim and faces “structural drags on growth,” according to economist Julian Evans-Pritchard at Capital Economics. He believes that fiscal spending and credit growth will stimulate the economy to a cyclical recovery in economic activity. This is from that fact that Chinese policymakers have cut interest rates five times since November. This aims at stimulating the economy by boosting lending and consumption through consumer spending.

            Even with this large growth and production slowdown, the Chinese government has made appropriate accommodations by cutting interest rates to stimulate the economy. If the economy does not make a full recovery by the next business cycle, however, it could mean a major economic downfall for the country and the world. I believe the Chinese economy can make a full recovery if the government backs off the market and allows innovation through private enterprises rather than state-owned enterprises. With a free capital-market system I believe China could once again become the world’s biggest economy.

http://www.bbc.com/news/business-34332806