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Steady nowCHINA’S ECONOMY, THE world’s second-largest, grew at its slowest pace in a quarter of a century last year, decelerating to expansion of 6.9%.
International financial markets have been hammered in recent months by worries over a slowing China, which has been the main driver of global growth.
Theses are some key points which explain China’s economic transformation and how it affects the rest of the world.
Why does it matter?
The days of isolation for the People’s Republic are long over. China is the world’s second-largest economy and its largest trader in goods.
From Australia to Zambia, via the European Union and United States, China’s influence on other economies is pronounced, whether through the prices of commodities such as iron ore, oil, and copper, or through rising consumer demand for luxury and consumer goods from foreign companies.
Retail investors can also feel the effects. The markets in Shanghai and Shenzhen have been in varying degrees of turmoil since a debt-fuelled bubble burst in June, but worries over the economy have also fuelled sell-offs in overseas stock markets in recent weeks.
Are the latest figures good or bad?
China has already served notice of a “new normal” of slower expansion as it seeks more sustainable growth, supported by domestic consumer spending rather than cheap exports and massive government investment.
So to the government, 2015 was a year of “moderate but stable” development in line with the annual target of around seven percent.
Such rates would be the envy of developed economies in North America or Europe, and the figures matched market expectations.
But after decades of rapid Chinese growth, often with double-digit annual GDP increases, which helped the world navigate both the 2008 global financial crisis and the earlier Asian financial crisis, a quarter-century slowdown is a worrisome sign.
Why has growth slowed?
Analysts point to a multitude of reasons: a weaker external environment which caused Chinese exports to drop last year and a limping property market, a key source of revenue for the government.
More alarming in recent months, a stock market collapse which caused the financial sector to contribute less to the economy, and a weakening currency which has seen capital storm out of the country.
Chinese officials say the Asian country is willing to accept slower growth as part of the cost of carrying out deep structural changes. For the first time, services made up more than half of GDP in 2015.
But analysts fear the current environment has actually caused much-needed economic reforms to halt, delaying policies needed to sustain China’s development in the long term.
Are China’s economic figures reliable?
When Wang Baoan, the chief of China’s National Bureau of Statistics, was asked the question as the data was released today, he answered: “The GDP data we publish is true and trustworthy.”
But even Premier Li Keqiang has previously expressed doubts about man-made data, and many analysts take Wang’s assurance with a grain of salt.
As well as political pressure, they point to the frequent revision of prior quarters’ data, which can change comparison bases, and the speed with which China produces its figures, less than three weeks after the end of the calendar year.
Some estimate the real growth rate is significantly lower than official statistics. Capital Economics said that its own measures pointed to Q4 growth of just 4.5%, but its economist Julian Evans-Pritchard said in a note that the economy was nonetheless “broadly stable”.
What will the government do now?
Beijing wants to keep growth steady and stable, while shifting the economy away from its traditional dependence on exports and infrastructure spending. This is easier said than done.
Analysts anticipate that Beijing will further loosen monetary policy this year to fight deflation, with the weak growth figures spurring expectations.
But the government’s bungled handling of a volatile stock market and yuan devaluation have called into question its ability to steer China safely through a tough transition.
This year’s big challenges include: how to handle a massive oversupply of property and rein in continued overproduction in heavy industries, many of them still state-owned, that dominate much of the economy.
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“Sold with little fuss”…that’s what we need. Iceland 10 year bonds trading at 220 points above ours. Without fuss is how sovereign solvent companies trade.
What is a T-Bill? I honestly don’t know if these T-Bills are consolidated loans/debt or not.
It wasn’t explained very well, in my opinion.
While they’re at it, NTMA might sell my Gas and ESB Bills too.
Wait, if they’re worth €500m, then they must be like bonds or something.
They are consolidated debt packages that guarantee a return at the point of maturity so the 2% interest is paid at the end of the three months with the initial value of the t-bill, just means they don’t pay returns on a monthly period like other securities
They are short term loans (less than a year) that don’t pay any interest, rather they are issued at a discount and then redeemed at par value (why it is a yield of 2%, not interest rate of 2%). Treasury notes and bonds are longer term so they tend to pay interest on a bi-annual or annual basis, hope this helps :)
Thanks for that.
The rate is .2 %t not 2%. Even the .02% is annualized so the return would really only a quarter of that.
T bills are a no brainer for an investor with loads of dosh. The turn over is 3 months with guaranteed return. They also cost the state a lot more than bonds of 5 and 10 years, which is what we should be selling instead of these pathetic T bills. Its a pointless effort.
I agree, why are we shelling out 250k in interest plus administration costs to borrow money that we don’t need for three months.
We’ll never get out of this bailout the government keep selling T bills. have they not learned anything. ?? muppets
Ok, let’s stop paying social welfare, why the f$ck do you think the government borrows money?
To pay billions of private banking debt….that bloody why!
haha,,. conor. THATS NOT HOW IT WORKS.. you seem not be able to get your head round a lot of things the last couple of days.
T bills have to be paid back in 3 months, and cost a lot more than ordinary bonds. Most countries borrow money to pay the bills until the tax receipts come in, but this is akin to borrowing money from a loan shark.. Can you see the sense in that. go educate yourself instead of trying to hurl insults at people all the time.
Actually t-bills do not exclusively have to be paid back within 3 months, they are in fact short term bonds with maturities of less than one year.
The reason the Irish government is using these short-term bonds is to test the market. If they issue say a load of ten year bonds at an interest rate of ca. 6%, they are then locked into paying a 6% coupon rate for ten years. However if they issue short term bonds until the market gains confidence, they can issue long term bonds in the future at a much lower coupon rate in the future at a much lower overall cost than issuing high coupon long term bonds now.
How else do you think the country should borrow?
haha,,. simon. THATS HOW IT WORKS… LOL’09
More of our future and nation sold off.
The reality is that democratically elected politicians are completely incapable of managing any countries finances.
The reality is that politicians feel, and are probably right, that they must spend borrowed money for election success when this is actually giving away our nation and loading us with future debt burdens and taxes.
How many people go on Joe Duffy to demand reduced spending?
I saw an “Unemployed Action Group” with a placard saying “Not Our Debt”. Guess they didn’t get the irony.
The problem is simple.
The people required to run our country effectively have no interest in becoming politicians. So basically it is left up to complete morons to try and take a stab at it. Ireland will be pissing against the wind for the foreseeable future with the current generation of Politicians. There is just no one there at the moment with a proper business head on.
have your say