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AP Photo/Dita Alangkara

China's economy is slowing down big time - here's what it means for everyone else

The country just posted its lowest growth in a quarter century.

CHINA’S ECONOMY, THE world’s second-largest, grew at its slowest pace in a quarter of a century last year, decelerating to expansion of 6.9%.

International financial markets have been hammered in recent months by worries over a slowing China, which has been the main driver of global growth.

Theses are some key points which explain China’s economic transformation and how it affects the rest of the world.

Why does it matter?

The days of isolation for the People’s Republic are long over. China is the world’s second-largest economy and its largest trader in goods.

From Australia to Zambia, via the European Union and United States, China’s influence on other economies is pronounced, whether through the prices of commodities such as iron ore, oil, and copper, or through rising consumer demand for luxury and consumer goods from foreign companies.

Retail investors can also feel the effects. The markets in Shanghai and Shenzhen have been in varying degrees of turmoil since a debt-fuelled bubble burst in June, but worries over the economy have also fuelled sell-offs in overseas stock markets in recent weeks.

China Financial Markets Andy Wong Andy Wong

Are the latest figures good or bad? 

China has already served notice of a “new normal” of slower expansion as it seeks more sustainable growth, supported by domestic consumer spending rather than cheap exports and massive government investment.

So to the government, 2015 was a year of “moderate but stable” development in line with the annual target of around seven percent.

Such rates would be the envy of developed economies in North America or Europe, and the figures matched market expectations.

But after decades of rapid Chinese growth, often with double-digit annual GDP increases, which helped the world navigate both the 2008 global financial crisis and the earlier Asian financial crisis, a quarter-century slowdown is a worrisome sign.

Stock Market-Rocky Start Associated Press Associated Press

Why has growth slowed?

Analysts point to a multitude of reasons: a weaker external environment which caused Chinese exports to drop last year and a limping property market, a key source of revenue for the government.

More alarming in recent months, a stock market collapse which caused the financial sector to contribute less to the economy, and a weakening currency which has seen capital storm out of the country.

Chinese officials say the Asian country is willing to accept slower growth as part of the cost of carrying out deep structural changes. For the first time, services made up more than half of GDP in 2015.

But analysts fear the current environment has actually caused much-needed economic reforms to halt, delaying policies needed to sustain China’s development in the long term.

China Economy Associated Press Associated Press

Are China’s economic figures reliable? 

When Wang Baoan, the chief of China’s National Bureau of Statistics, was asked the question as the data was released today, he answered: “The GDP data we publish is true and trustworthy.”

But even Premier Li Keqiang has previously expressed doubts about man-made data, and many analysts take Wang’s assurance with a grain of salt.

As well as political pressure, they point to the frequent revision of prior quarters’ data, which can change comparison bases, and the speed with which China produces its figures, less than three weeks after the end of the calendar year.

Some estimate the real growth rate is significantly lower than official statistics. Capital Economics said that its own measures pointed to Q4 growth of just 4.5%, but its economist Julian Evans-Pritchard said in a note that the economy was nonetheless “broadly stable”.

South Korea Japan China Summit Chinese Premeir Li Keqiang Lee Jin-man Lee Jin-man

What will the government do now?

Beijing wants to keep growth steady and stable, while shifting the economy away from its traditional dependence on exports and infrastructure spending. This is easier said than done.

Analysts anticipate that Beijing will further loosen monetary policy this year to fight deflation, with the weak growth figures spurring expectations.

But the government’s bungled handling of a volatile stock market and yuan devaluation have called into question its ability to steer China safely through a tough transition.

This year’s big challenges include: how to handle a massive oversupply of property and rein in continued overproduction in heavy industries, many of them still state-owned, that dominate much of the economy.

© – AFP 2016.

READ: North Korea says it could ‘wipe out’ America if it wanted to >

READ: One bank is telling investors to ‘sell everything’ as stock markets tank >

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    Mute in_zane_burger
    Favourite in_zane_burger
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    Apr 2nd 2014, 3:06 PM

    Can I have my money back now

    32
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    Mute padser123
    Favourite padser123
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    Apr 2nd 2014, 3:33 PM

    It’s like’…..burning your furniture – to keep warm!

    23
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    Mute Paul Roche
    Favourite Paul Roche
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    Apr 2nd 2014, 4:52 PM

    Why are PwC saying this instead of IBRC and NAMA?

    11
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    Mute Philip
    Favourite Philip
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    Apr 2nd 2014, 5:20 PM

    As property prices start to rise nama , ibrc start to dump property

    Can someone explain why?

    9
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    Mute Dara O'Brien
    Favourite Dara O'Brien
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    Apr 2nd 2014, 5:56 PM

    Dumping loans philip, not property. They’re Dumping the loans as they’re non-performing and want to get them off the balance sheet.

    If they had the patience, they’d put arrangements in place to allow the properties to return to positive equity and then seek a sale, this recouping more of the tax payers money.

    Unfortunately, they’ll sell the loans for a discount and allow the new purchasers to do this and net a tidy profit.

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    Mute Garry Coll
    Favourite Garry Coll
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    Apr 2nd 2014, 5:02 PM

    The article outlines that IBRC (IBROKE would probably be a better name) will offload € 15 billion in loans.
    Yet the linked article tells us that IBROKE have already offloaded 90% of its loanbook, € 19.8 billion out of € 21.7 billion leaving just € 1.9 billion on hand.
    This can only mean, if the previous article is correct, that it is NAMA that is offloading the majority of the loans.
    Why the subterfuge?
    Why make people think that this is some kind of joint enterprise when it is NAMA that is leading the charge?
    Have the shiny suit brigade from the canal something to hide?
    Given their obsession with secrecy it would not surprise me if they have, perhaps selling the loans to some preferred customer with an inside track at a serious discount.
    The way things go it will all be wrapped up before we know anything, plus ça change.

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    Mute Irish Revolution
    Favourite Irish Revolution
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    Apr 2nd 2014, 2:58 PM

    Who in their right mind would buy this junk?

    3
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    Mute Padraig McHale
    Favourite Padraig McHale
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    Apr 2nd 2014, 3:01 PM

    It might only be worth 30% of face value but if you buy it for 20% it’s a good deal. For the buyer anyway.

    32
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    Mute Tony
    Favourite Tony
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    Apr 2nd 2014, 3:06 PM

    @ Irish Revolution

    The Banks?

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    Mute Deirdre McDonnell
    Favourite Deirdre McDonnell
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    Apr 3rd 2014, 2:42 AM

    Hedge funds bought it. They will now sell off all the ghost estates etc at a lower price so people that have houses for sale at the min will eventually have to sell for half or take them off the market.
    Fab house here in drogheda asking price €325. Hilarious. You could now nearly get a house for that on raglan road or ailsbury road!! So that house is realistically worth less than €150 really.
    People and notions ha

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    Mute Vanessa Doyle
    Favourite Vanessa Doyle
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    Apr 2nd 2014, 7:04 PM

    What about Bank of Scotland selling on my mortgage & others in their Irish portfolio to a company called Tanager Ltd.
    I’m in a tizzy all day because I don’t know what it means for us.

    3
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