CHINA’S SLOWDOWN: STRUCTURAL OR CYCLICAL

IS CHINA’S ECONOMIC SLOWDOWN STRUCTURAL?

Ha Jiming

The Jakarta Post, August 23, 2012

China’s economy has grown at its slowest pace since the second half of 2009, recording 7.8 percent gross domestic product (GDP) growth in the first half of 2012 and 7.6 percent growth in the second quarter.

The slowdown was attributable to weak external demand for China’s exports as well as slowing investment growth, particularly in real estate and its related sectors.

The Chinese government has introduced a series of measures to counter the slowdown, including interest rate cuts and the lowering of bank reserve requirements. There are also increasing calls for stimulus packages to boost spending.

However, to determine what measures are most effective in addressing the current economic slowdown, one must answer the question: Is China’s economic slowdown caused by structural or cyclical factors?

There has been a great deal of debate on this question. Some academics and commentators asserted that cyclical factors played a major role in China’s GDP growth slowdown, noting that continued urbanization and industrialization would allow China to maintain a growth rate of at least 8 percent in decades to come. They believe counter-cyclical policy responses are needed in the current environment.

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