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China's Economic Slowdown is 'Necessary Situation' That Will Continue – Prof

© AFP 2023 / Fred DUFOURChinese 100 yuan notes. (File)
Chinese 100 yuan notes. (File) - Sputnik International
China’s GDP growth fell to 6.5 percent in the third quarter of 2018. The country’s National Bureau of Statistics reported that while it did not surpass the official forecast, the pace of growth was lower than expected; earlier, China’s year-on-year GDP growth fell from 6.8 percent in the first quarter to 6.7 in the second.

Sputnik discussed the issue with Ann Lee, expert in US-China relations, author of the award-winning book 'What the U.S. Can Learn from China', and adjunct professor of economics and finance at New York University.

Sputnik: China's GDP still grew an impressive 6.5 percent despite US tariff measures. In your view, how serious is this reported slowdown? Or is this even a slowdown?

In this Sept. 16, 2018, photo, American flags are displayed together with Chinese flags on top of a trishaw in Beijing. The American Chamber of Commerce in China says Beijing will dig its heels in after U.S. tariff hikes and appealed for a negotiated end to their trade battle - Sputnik International
China's GDP Growth in Q3 2018 Lowers to 6.5% Amid Trade Row With US
Ann Lee: Actually, China had reported a slowdown even before Trump's trade war. So this is a continuing trend; even that they have touched a large base to grow at a regional pace would have been pretty much impossible.

So, the slowdown was somewhat expected and will continue. The tariffs could possibly be exacerbated going forward, but the slowdown is sort of a necessary situation given that they were designed to reform the economy, and it just simply is extremely large and it's not possible to grow the size of Saudi Arabia every single year.

Sputnik: What is your outlook for China's GDP growth in the fourth quarter of this year?

Ann Lee: I actually expect it to slow down a little bit more given that right now you have a lot of people putting in a lot of orders to try to beat the tariffs, and also consumer spending rose because you've got the Chinese national holiday, the Harvest Moon holiday, giving the consumers 11 says of vacations and therefore a lot of consumer spending. That also caused the numbers to look good this time around.

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I actually think that it might slow down more given tariffs as well as some self-inflicted problems that China's government has put on its private sector given that most of the bank loans have been going to the state-owned enterprises as opposed to the private companies. So, one of these cash struck companies may be going bankrupt.

Sputnik: It's very interesting what's actually happening in the global economic front with these trade tariffs being positioned and being affected immediately in a few months' time. That's quite confusing for the average layperson in the street to understand what is actually going on with the situation with so much GDP growth in some countries. And, like you're alluding to, a lot of companies and organizations were obviously buying products before these tariffs kicked in. We're seeing this growth phenomenon this year; are we looking a global economic situation next year that's going to be akin to a very severe depression? Is China and America, and the rest of the global community going to be able to navigate through this situation? Can you understand that sort of question from an average person?

Ann Lee: I would say that a lot of economic growth has to deal with expectations; as you said people are putting in orders now in expectation of higher tariffs.

READ MORE: Trump Goes After Beijing in Trade War, China Shuts Door on US Trash Imports

A truck transports a container next to stacked containers at a port in Qingdao in China's eastern Shandong province on October 12, 2018 - Sputnik International
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The ongoing situation with the global economy is such that if people who live in an environment are good, then they're more likely to spend and invest. If they think that it's not going to be good, then our people will be reluctant to open up their wallets and therefore the economy will slow down.

This is going to depend on the trade deal that the Trump administration decides to do. So far they have been the ones who have ruffled feathers all across the world with their tariff demands and the re-negotiations of different trade treaties; and if they continue to play hard ball, that could cause a lot of uncertainty with many businesses who are reinforced to figure out whether they want to change up their supply chains or not, or whether they will continue and soldier on and have the cost onto their consumers.

Sputnik: How does this fall in GDP affect China's neighbors and other economies? Because once a certain economy the size of China is concerned, you would have thought that that's certainly going to have consequences from a negative point of view on its neighbors. Do you have any point of view with regard to the effect that's going to have?

A child holds the national flags of Russia and China prior to a welcoming ceremony for Russian President Vladimir Putin outside the Great Hall of the People in Beijing, China, June 25, 2016 - Sputnik International
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Ann Lee: It could certainly have a negative effect, although it may be positive for them depending on a lot of factors. If China decides to engage more with them to develop their economies more in terms of investment in their economies, that actually might not be a bad thing.

China obviously is working on their Belt and Road initiative which is really to develop developing world with infrastructure and other programs. So, if China decides to plough more investment in these areas to make up for lost business with the US, then it actually could be a good thing for these economies. So, it really depends on a lot of things; we will have to wait and see what China's policies will be.

The views and opinions expressed by the contributors do not necessarily reflect those of Sputnik.

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