WTO membership may help arrest Chinese slowdown

OECD Observer

China was probably the world’s fastest growing economy of the last twenty years, when it expanded by an average growth rate of 9.9 % per year. However, according to Wing Thye Woo, professor of economics at the University of California (Davis), a clear slowdown has begun to occur. Speaking at OECD on 16 November, Mr Woo suggested that the boom had been losing momentum since the mid-1990s, with the growth rate falling from 10.5 % in 1995 to 9.5 % in 1996, 8.8 % in 1997 and 7.8 % in 1998. Growth is officially expected to hold steady at around 7.3 % in 1999, but there were risks that it would be lower than that. “With a 3% drop in retail prices in each of the last three years, the above 7% growth rate is probably overstated. The actual growth rate is probably about 6 %”, Mr Woo said.

The main cause of the slowdown was the decline in household consumption since 1995, largely due to job insecurity at a time when government departments and state-owned enterprises were being restructured. More recently, net exports have fallen sharply from $46 billion in 1997 and 1998 to under $30 billion this year. The volume of foreign direct investment (FDI) is also down, having dropped to less than $40 billion in 1999 versus $45 billion in 1997 and 1998. In addition to the slowdown of the Chinese economy and the devaluations in neighbouring countries in the wake of the 1997 Asian financial crisis, many foreign investors are still waiting to see if the yuan will be devalued. This is a step that cannot be ruled out entirely, but as China is likely to join the WTO, FDI should pick up again, stimulating growth and strengthening the exchange rate.

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©OECD Observer No 219, December 1999 




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