2015 Proves Dismal for Chinese Economy and New Normal Policy

2015 has not been a very bright year for China’s economy and many analysts are pointing the finger at government intervention, which has included a crackdown on some of China’s biggest business leaders.

The purge, which some are calling a witch hunt, was sparked by last summer’s stock-market meltdown. Among the targets were some of the financial sector’s biggest investment bankers, brokers and regulators.

“2015 was a year in which many of China’s high profile businesspeople might have agreed that they enjoyed the trappings of power and wealth only at the whim of the authorities,” said the BBC’s China Editor Carrie Gracie.

Still, some were targeted despite their strong support of the ruling Communist Party.

“Why would the government want to target me?… I believe in the future of China. I believe in the Party’s reform policy,” stated Guo Guangchang, often referred to as “China’s Warren Buffet.”

Nonetheless, the chairman of Fosun Group went missing. He was actually held by police for questioning.

As for the reform policy?

China’s “New Normal” policy has taken a beating this year.

“New Normal” refers to China’s intended shift from a high-speed growth economy led by exports to a slower, yet cleaner growth powered by domestic consumption.

During the first half of the year, China’s Foreign Finance Minister Lou Jiwei in a controversial speech warned that China did not have “a lot of time left and the only way forward is reform.”

Soon, it became evident that consumption was not rising fast enough for China to meet its 7 percent growth target.

High speed ageing and a mountain of debt presented yet more challenges.

Some economists believe structural reforms won’t reverse the downward trend, but instead would prevent China from reaching the middle income trap—the point where a country reaches a certain income level and stops growing.

A 2015 report by news organization Caixin warned that one in five promised reforms were on target.

Gracie, the BBC’s China editor, elaborates on this.

“At the start of the year, piecemeal financial sector reforms were in prospect, but stock market meltdown, capital flight and bungled currency depreciation did not help. Nor did the sense that different agencies in government and the Communist Party were in conflict.”

The state-owned sector has also lacked in strengthening the economy overall. Some analysts believe China won’t be able to fix its debt issues without shutting down some State-Owned Enterprises.

The private sector, however, is creating wealth rather than acquiring debt. Its firms account for nearly every new job created in the country, according to the BBC.

“And if China’s economy is going to change into the much-vaunted ‘new normal’, it desperately needs to encourage private enterprise, rather than scare off those cunning and mobile enough to export their capital abroad,” explains Gracie.

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