“China’s Economic Decline: Impact on Purchasing Power and Trade Balance”

Jakarta, CNBC Indonesia – China’s economy again showed indications of a decline due to weakening purchasing power. Economists are of the view that one of them is caused by China’s economic activity which has not fully recovered after 3 years of lockdown during the Covid-19 pandemic.

Indef Executive Director Tauhid Ahmad explained, the impact of the prolonged lockdown in China is still being felt, that’s why the purchasing power of the people of this Bamboo Curtain country also declined in April 2023 to only 0.1% (year on year/yoy) lower than inflation in the previous month which reached 0.7%.

High inflation can erode people’s purchasing power, conversely low inflation can mean people’s purchasing power is weak or people are reluctant to shop and choose to save. Thus, the right inflation rate can be an indicator of health and economic growth.

Likewise, with the problem of the trade balance in China, where exports grew slowly and imports fell in April 2023.

Imports of the country with the second largest economy in the world recorded a decline of 7.9% (year-on-year/yoy) in April 2023, deeper than the 1.4% contraction in the previous month. Chinese Customs and Excise data also recorded exports growing 8.5% (yoy). Even though it grew, the figure was reduced from 14.8% last March.

According to Tauhid, this is also the impact of China’s economy not recovering after 3 years of lockdown.

“It’s only been a year since our economy has recovered. Meanwhile, China’s lockdown recently opened. So, China’s economy cannot grow immediately,” Tauhid explained to CNBC Indonesia, quoted Monday (15/5/2023).

“The issue of purchasing power has not yet arisen and China’s growth in consumption is still low. The demand is not much, a lockdown effect. Also many companies are laying off their employees, so economic activity is not yet normal,” Tauhid continued.

China is now in the spotlight of the world, including Indonesia. The deteriorating economy has had a negative impact on Indonesia.

China is Indonesia’s largest trading partner country. The total trade between China and Indonesia will exceed US$ 133.65 billion in 2022, up 17.70% compared to 2021.

China’s Economic Foundation Is Not Sturdy

An economist from the University of Indonesia, Fithra Faisal, revealed that China’s economic foundation is indeed not as solid as it used to be, which has always been able to record double-digit economic growth.

Fithra revealed, since 2015 China’s economic growth has slowed down. This is because of the Chinese government’s own policy which only allows its people to have one child in each family.

“There have been many projections of a slowdown in China’s economy due to demographic problems. The cause of China’s one child policy has created a kind of gender inequality, there are more men than women,” explained Fithra to CNBC Indonesia.

Coupled with the Covid-19 pandemic, which caused an even greater shock to the Chinese economy. Nevertheless, China’s economy is slowly starting to be saved, because China is a supplier country for industrial needs for the whole world.

But on the other hand, in terms of national economic development in China it is also hampered, because there is no demand. Again, according to Fithra, this is due to unbalanced demographic constraints.

“Demand for infrastructure is usually demand from people who are of productive age. However, this is because the demographic is only a little productive, so that a lot of infrastructure, such as housing in China, is actually not selling,” said Fithra.

In the end, this demographic issue, according to Fithra, is a problem and a challenge for China in improving its economy going forward. Fithra believes China’s economy can still grow in the range of 5% to 6%.

“The projection is that China’s economy can still grow. But it takes time and production inputs,” said Fithra again.

The status of China which has been the world’s most populous country will be replaced by India.

As of April 2023, India’s population is estimated at 1,425,775,850. This number overtook China’s population. India’s population will continue to increase in the coming years. In contrast, China’s population has peaked and started to decline since 2022.

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