Corruption Crackdown Slowing Down China’s Economy Could Be A Good Thing
Bianca Ortega | | Aug 22, 2014 09:58 AM EDT |
(Photo : Reuters) China's President Xi Jinping gestures as he addresses an audience.
Xi Jinping pursued a broad crackdown on corruption after he became China's president in March 2013, but the campaign also affected the country's economic growth that raised concerns in the financial industry.
Based on the International Monetary Fund's projection for GDP (gross domestic product) growth this year, foreign investment in China dropped for the first time in 17 months in July.
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Xi's anti-graft campaign had an adverse effect on luxury industries and is now poised to target other giant corporations such as Audi, Microsoft and GlaxoSmithKline, the International Business Times reported.
People are now wondering if the Chinese Communist Party's effort to purge itself of corruption has brought down the country's economic progress.
Anna Snyder, an analyst at New York consultancy firm Rhodium Group, said Xi's campaign is just a small part of a bigger effort to turn China's economy around.
Indeed, China's struggle with its slowing economy started long before Xi took his place as president. Goods export and infrastructure investment fueled the country's rapid growth since 1978 but these two factors are now experiencing a natural decline.
In 2007, Premier Wen Jiabao conveyed his worry about the economy's lack of balance, coordination and sustainability. This was the year when China's GDP rose to 14.2 percent.
Xi's anti-graft movement presents a paradox: Chinese leaders want to increase the country's consumption but the government is targeting industries that fuel it.
In light of these things, Chinese politics expert Cheng Li argues that real corruption is detrimental to a country's economy because it keeps the state from using money for productive causes. He says a crackdown will pave the way for the long-term health of China's economy.
Xi's crackdown on corruption will take away funding for "unsolicited purchases," Cheng said in July. He explained that this effort will help restore projects for improving infrastructure, employment rates and government services.
However, China is not willing to slow down the economy fully in the name of Xi's cause. Beijing imposed tighter credit policies for housing early this year to slow down the over-capacitated market but reversed the move when prices dropped quickly.
Cheng explained that although the corruption crackdown is necessary, it is not enough to address the deeper issues that China faces. He said the country also needs to implement reforms in its legal and political systems to promote good governance.
TagsInternational Monetary Fund, International Business Times, Chinese Communist Party, Anna Snyder, Wen Jiabao, Cheng Li
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