The slowdown in the Chinese economy is being done on purpose because is excessive growth in the real estate and factories much of which was uneconomical, extravagant and unproductive. The Chinese government is making efforts for the economy to be more sustainable even if it means slower growth. It is also trying to make the economy less dependent upon manufacturing and be more reliant on service industries. Meeting such objectives are not going to be easy and initial reports suggest that the transition is not going as expected. The index shows that the Chinese service industries have failed to pick up the slack from the manufacturing sector.
China watchers are of the opinion that there are real reasons to be concerned about the Chinese economy. One reason is that the Chinese government has alarmed world markets by depreciating its currency by 2 percent against the dollar in August. Traders thought that this was a sign of desperation by the Chinese government to help its exporters by lowering the value of the Yuan which would make Chinese products cheaper and more affordable for buyers. The August depreciation stabilized the Yuan for three months and helped the economy because the Yuan is closely connected to a rising dollar. Recently the Yuan was at its lowest since 2011
The Chinese economy has been weakening for years and there is the risk that Chinese businessmen will carry out their business activities more aggressively and any country that is in competition with Chinese products will put their profits at risk. The Chinese government is working to prevent the Yuan from free falling, but investors who feel that the Yuan will be loose its current value by up to 8 percent will probably sell their investment which will put more pressure on the Chinese currency and its stocks. Chinese policymakers are being blamed for trying to influence markets not implementing the needed reforms.
The ongoing position of Chinese currency and stocks shows a lack of confidence in the economic management skills of Chinese policymakers and also shows concern about the Chinese economy in general. The government’s clumsy efforts to shore up the Shanghai stock market did not go down well with investors who hoped that China was in the process of adopting a more flexible financial system. The moves by the Chinese government have confused investors about their policies against the Chinese currency and this has not helped the Chinese economy, in fact, it has been detrimental for the country.