China Faces ‘Darkest’ Year Since 1976

China Faces 'Darkest' Year

China Faces ‘Darkest’ Year: Dark clouds shrouded China this year, the economy is expected to record the worst performance in nearly 5 decades. The reason, comes from within and outside the country. As a country with the second largest economy in the world, as well as Indonesia’s main export market, China’s economic slowdown will certainly have an impact on the country. A recent Reuters survey involving 40 economists showed China’s economy is expected to grow 3.2% in 2022, well below the government’s 5.5% target.

China Faces ‘Darkest’ Year Since 1976

If you don’t take into account 2020, when the world was hit by a pandemic of the coronavirus disease (Covid-19), then the growth of gross domestic product (GDP) was the lowest since 1976. In 2020, China’s GDP grew only 2.2%, but the same is happening to the world. The Chinese government under the command of President Xi Jinping is still implementing a zero Covid-19 policy, which is one of the triggers for the economic slowdown. With this policy, when Covid-19 cases begin to increase, a regional quarantine (lockdown) will be applied.

As a result, economic activity goes back and forth. This is exacerbated by the disruption of energy and food due to the Russia-Ukraine war and the global economic slowdown due to aggressive interest rate hikes in various countries to reduce inflation.

“The economy is likely to be under pressure in the fourth quarter, but there will be a recovery next year. However, it will still be difficult to see a strong recovery due to global demand,” said Nie Wen, economist at Hwabao Trust. China’s stock market shows how a dark cloud shrouds its economy. So far this year, the Shanghai Composite index has fallen 15%.

China’s Shanghai Composite Index

The movement of the stock index can indeed be an indicator of a country’s economy. Investors are usually always forward looking, so when they see the economy is not going well in the future, the stock market tends to be left behind. China’s economic slowdown could have a big impact on Indonesia. Indonesia’s exports are at risk of declining, which could have an impact on the trade balance surplus.

Based on data from the Central Statistics Agency (BPS), the value of Indonesia’s exports to China in the period January – August 2022 was US$ 39.1 billion. This value contributed 21.3% of total exports. China is the world’s largest consumer of commodities. Most of Indonesia’s mainstay commodities, coal and crude oil, were exported to China, thus recording a trade balance surplus for the 28th consecutive month.

When China’s economy slows down. Of course. Exports will be disrupt. When the trade balance is no longer in surplus, the current account risks experiencing the same thing. As a result, the supply of foreign exchange into the country will again drag and risk disrupting the stability of the rupiah exchange rate. In the current uncertain condition, rupiah stability is very important, in addition to maintaining foreign investor confidence, it can also reduce inflation spikes.

Senior Economist Chatib Basri also said that Indonesia needs to worry more about China than the United States. I am actually more worri about the (impact) of the Chinese economy. Compar to the US economy on us. Because if China is hit. our (Indonesian) exports will really be hit.” Said Chatib. You can imagine. He continued. Exports that Indonesia is proud of. Such as nickel and steel. Will decline.

“If China slows down, he doesn’t need steel. What’s steel for, right?”

Currently, Chatib said that the Chinese economy was heading towards a ‘new normal’. According to him, China cannot grow in double digits in the future. “Maybe the long-term growth is around 4%, far, (but) that must be anticipat. I’m not talking about this year, but the long-term growth could go that way,” he said.

Therefore, he believes that Indonesia should be able to diversify its trade. In addition, Indonesia can rely on investment in the future. Chatib hopes that Indonesia can become the basis for a production network.

About the Author: AKDSEO

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