March 11, 2019

The PRC's Economic Problems

Reasons and Consequences for the World and Ukraine


Despite the growing disagreements between the leading powers of the world in the new multipolar system of international relations, they maintain significant interdependence in the economic sphere. At the same time, they also have a significant impact on the overall economic situation in the world, which is the result of the deepening processes of world globalization.

To date, one of the main subjects of such influence is China, which is the second after the United States in the world by its economic potential, and even leaves it behind by a number of indicators. Thus, according to the World Bank, the PRC's share in world GDP is 16.2 % (US — 23.5 %), and the contribution to the development of the world economy is about 34 % (US — 18 %). Similar indicators for other leading countries of the world do not exceed 3–5 % (Russia — 1.8 % and 1 %, respectively).

At the same time, China remains the world leader in the growth rate of its economy. In 2018, China's GDP grew by 6.6 % (US — by 3.6 %). At the same time, China's pace of economic development continued to decline and was the lowest in the last 28 years (in 2017 it was 6.8 %, and in 1990 it was about 14 %). The main reasons for this are the weak domestic demand and low investment activity in the PRC, which was the result of the government's certain miscalculations in conducting economic reforms. Thus, in 2018, the total retail sales of consumer goods in the PRC increased by only 9 %, while in 2017 — by 10.2 %. In turn, last year, fixed-asset investments increased by 5.9 %, while in the previous year — by 7.2 %. Besides, the Chinese economy was negatively influenced the US increasing import duties on Chinese goods, which has led to a sharpening of trade disagreements between the two countries.

All this creates a number of problems for the PRC both current and strategic. Lower tax revenues lead to the growing deficit and indebtedness of Chinese municipalities. As a result, the implementation of local infrastructure and social projects is getting complicated, and the normal work of local financial institutions is violated. In addition, according to the S&P Global Ratings, China may face credit risks and further decline in foreign investments. Moreover, China has to limit the pace of increasing defense spending, which creates barriers to the development of the Chinese army.

In 2018, China's GDP grew by 6.6 % Industrial production, fixed-asset investments and retail sales in China
In 2018, China's GDP grew by 6.6 % Industrial production, fixed-asset investments and retail sales in China

This situation completely contradicts the strategic tasks of the 19th National Congress of the CPC (October 2017) regarding China's reaching the level of innovative countries-leaders due to the stable development of the Chinese economy, modernization of the armed forces and raising the living standard of the population.

In view of this, the leadership of the People's Republic of China is taking urgent measures aimed at improving the country's economic complex. The above- mentioned issue became one of the central topics of the second session of the China’s National People's Congress, which is held on the 5–15 March 2019 in Beijing.

During the session, Premier of China's State Council (Government) Li Keqiang summed up the work of the Chinese economy in 2018 and set the tasks for 2019. In his speech, he acknowledged the deterioration of the country's economy and its quite difficult future. According to Li Keqiang, the analysis of the situation allows to draw a conclusion about more serious risks and challenges that China may face this year than those with which it already dealt last year.

Therefore, the Chinese government has developed a plan to support the Chinese economy both at the expense of state resources and with the involvement of private capital. Thus, in 2019, the expenditures from the state budget of the country is expected to increase by 6.5 % to 3.4 trillion US dollars, on realization of various kinds of economic projects included. The main of them will remain the program “Made in China”, which is aimed at supporting the work of national producers. For the same purpose, taxes will be reduced (first of all, the input value added tax).

Chinese Premier Li Keqiang delivers the Government Work Report at the opening session of the National People's Congress in Beijing, March 5, 2019 Chinese Premier Li Keqiang delivers the Government Work Report at the opening session of the National People's Congress in Beijing, March 5, 2019
Chinese Premier Li Keqiang delivers the Government Work Report at the opening session of the National People's Congress in Beijing, March 5, 2019

The elimination of obstacles in the country's foreign trade will also be a priority direction of the efforts of the PRC's leadership. In this regard, China has already made concessions to the United States to meet its requirements for balancing trade relations between the two countries. This created conditions for resolving US-China problems in this sphere. Besides, there are plans to simplify foreign trade procedures, including to reduce customs clearance time.

Special attention will be paid to the improvement of the investment climate in the country. To this end, the PRC's government intends to step up efforts to enhance the transparency of the Chinese economy, ensure investment security, expand the foreign capital's access to the Chinese investment market (including the defense and information spheres), and strengthen the struggle against corruption. In particular, they have launched a special anti-corruption program.


At the same time, experts from the world's financial institutions are questioning the effectiveness and adequacy of these measures to address the economic problems of the PRC. They expect further slow down of the pace of the development of the Chinese economy — to 6.3 % in 2019 and to 6 % in 2020 to be exact.

In turn, this can lead to a reduction in the number of jobs, a decline in social funding, an increase in inequality in the living standard of different groups of the population and, as a result, to an increase in tensions in Chinese society. At this, some experts do not rule out the possibility of protests (similar to those in Tiananmen Square in 1989), which will push the Chinese authorities to totalitarianism. And in the future, it can cause Beijing's attempts to divert the public's attention from internal problems to confronting external adversaries, first of all the United States, and purposefully provoked border conflicts, including with Russia. In particular, such an opinion was expressed by Taiwanese edition of the Taipei Times in early March of this year.

At the same time, the PRC's economic problems will have a negative impact on the general state of the world economy. In particular, of the top 10 risks to the global economy in 2019, which were identified by The Economist magazine (owned by the British The Economist Group), three associated with China. First of all — the threat of a trade dispute between the United States and China turning into the full-scale global trade warfare, as well as the decline in China's procurement of raw materials and high-tech products.

The top 10 risks to the global economy in 2019, according to The Economist The top 10 risks to the global economy in 2019, according to The Economist
The top 10 risks to the global economy in 2019, according to The Economist

According to the American Fitch agency, these factors did cause a decline in world trade in the second half of 2018 and undermined the positions of a number of leading world companies, including Apple and Samsung. The former lost its role of the most capital-intensive company in the world and fell down to the fourth place, while the latter — for the first time in the last 15 years, lowered its revenue forecast in 2019.

However, most negative the consequences of China's problems may be for Russia which, because of Western sanctions, had to reorient its ties to China and, in fact, became its raw material appendage. Thus, according to the forecasts of Russian economists, due to troubles in the PRC, Russia's GDP growth rate may decrease to 1 %.

Similar consequences will be also for Ukraine, which also exports raw materials and semi-finished products to the PRC.


In general, the situation around the PRC once again shows the complexity of the new multipolar world, which, on the one hand, is characterized by an aggravation of disagreements between different states, and on the other — by the deepening of their interdependence. All this affects Ukraine's interests and demands from it both strengthening of the own economy and balancing of trade and economic relations with other countries.