Is there a crisis in China?

Lisa Jucca, Asia Finance Editor for Reuters, talks exclusively to WMIDO about what is happening in the world’s second largest economy.What is the reason for China’s economic crisis?For 30 years China has grown at an annual rate of over 10% because of massive industrial development and it is now entering a “normalization” stage, which is inevitable for an emerging economy that is becoming more mature.Today, China is the world’s second largest economy after the United States and has 7% growth, a figure that is astounding for countries like Italy. But there has been a decline in this trend. Factories in China have reached “saturation” levels, in other words they produce more washing machines, shoes and computers than the market needs. When there is a falloff in demand, the government is forced to promote large infrastructural works to support growth. But this creates considerable indebtedness and China’s debt – both public and private – is now over 250% of GDP.Is there a risk that the crisis will create a social gap between “rich” and “poor” and emphasize the existing gap between the “cities” and the “countryside”?China is becoming an urbanized country with considerable wealth in only a few hands. Over 50% of Chinese live in cities, with more than 20 million inhabitants in Beijing and Shanghai. But the real problem with China’s strong industrialization and urbanization is its devastating impact on the environment. Today, a third of China’s rivers are polluted and in large cities inhabitants must wear anti-smog masks because of air pollution. Beijing is promoting the use of clean energy, but converting millions of factories takes time.What effect is this crisis having or will have on Europe and the United States?The first effect of the slowing down of the Chinese economy was the collapse in the demand for oil and other raw materials. Since it does not have huge energy resources, China is forced to import them. But a drop in production was accompanied by a reduction in the import of energy sources. More worrying for Europe and for Italy is the downturn in domestic demand: because of the size of the Chinese market, this is felt by European exports in all sectors, from cars to apparel and accessories. If growth in China slows even more, Beijing could be facing unemployment – almost non-existent at the moment – and with it the risk of social instability.What are the possible ways out?The answers to the crisis can come from China itself. The government is trying to steer the economy increasingly toward the services sector. It is also attempting to make companies more competitive, but because they are frequently state-owned it is difficult to foster competition in an economy that for many years has been under the influence of state subsidies and protected by a closed market.There are good proposals, but the slowing down and collapse of the stock exchange could delay the reforms that China needs.