First quarter figures for 2015 show that the world’s second largest economy is in decline, confirming previous forecasts. The steep drop in China’s trade surplus as well as its exports and imports are symptomatic of a sick economy propped up by massive capital injections by the country’s central bank. Now the government wants to move towards a more self-sustaining economy but this could trigger social unrest.

Beijing (AsiaNews) – The decline in China’s economic performance, especially the plunge in its trade surplus, is not only worrying investors, but also the government in Beijing.

The figures for the first quarter of 2015 show an economy on the decline, which the government can address, according to experts, by either further capital injections or a more self-sustaining economy. Over the long haul, economic stagnation will lead to higher unemployment and lower purchasing power.

In the first quarter of 2015, China's economy grew at the slowest pace in six years. there are many reasons for this: a drop in the real estate market, excess industrial capacity and sluggish demand abroad.

Except for the latter, the trend is the result of huge government capital spending through the central bank, People’s Bank of China, to support growth, following Deng Xiaoping’s reforms in the 1980s.

More specifically, recent trade date show that China’smonthly trade surplus plummeted 62.6 per cent in March. Its imports also fell, by 12.3 per cent, whilst exports fell 14.6 per cent on-year in March, this according to China's customs administration.

Analysts had expected exports to rise 12 per cent in March on a yearly basis. They also expected a drop in imports but not by as much. The trade performance left China with a trade surplus of US$ 3.1 billion last month, much smaller than the forecast .4 billion trade.

"The slump in the exports figure is mainly due to the weak global demand, while the appreciation in dollars against other currencies in the past quarter was also negative for China's exports," said Nie Wen, a strategist at Hwabao Trust in Shanghai. "More stimulus measures are needed in the future."

China’s economy slumped like this in the first quarter of 2009, in the middle of the 2008 international financial crisis, when growth was 6.6 per cent.

For some analysts, the slowdown in the first quarter and the lower annual rate of growth in industrial output in March – 5.6 instead of the expected 6.9 per cent – show that exports remain a challenge. Beijing will likely resort to more stimulus measures, this according to many US observers.

Last month, the South China Morning Post had noted that National People’s Congress had focused on feasible goals, like 7 per cent Economic growth, 3 per cent inflation and 4.5 per cent urban unemployment rate.

These figures may be more than respectable, China’s industrial output still raises questions. The long-term goal of Beijing’s economic policy is to move away from quantity-oriented growth to a more Western-style quality growth.

Fully joining the world’s international financial system is also crucial for the world’s second largest economy. Until now, controls on capital movements and the convertibility of the yuan – still not included in the international currency basket – have allowed Beijing to avoid the test of international markets and maintain an iron grip on domestic savings.

Such a policy has benefited public banks and certain political-economic groups. However, with the creation of the Shanghai-Hong Kong Stock Connect, the financial fragility of China’s economy is more likely to show, especially considering that the country’s combined debt load exceeds 250 per cent of GDP.

“The long-term game “is to transform China’s .4 trillion economy into a more sustainable one, featuring a vibrant service sector and a more diversified finance industry that doesn’t rely so heavily on state-owned banks to allocate capital,” writes Enda Curran on Bloomberg.

Indeed, “China’s economy is in a very critical period of restructuring,” said Zhang Bin, a senior fellow at the Chinese Academy of Social Sciences in Beijing.

In his view, there will be economic pain as the government pushes through overdue structural reforms. “Even if GDP growth is lower, it isn’t a bad thing. We have talked about it for many years without progress, but now it is really making progress.”

Nonetheless, such an overtly optimistic view fails to taken into account social realities. A decline in GDP will increase unemployment and decrease significantly the average purchasing power of Chinese consumers.

These two factors could trigger massive social unrest – already a major issue despite President Xi’s iron fist policy – as well as undermine the country’s Communist one-party state.

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