This very recently posted
article, confirms what we've been hearing for a little while now, and that is that China's economy is slowly losing its momentum.
"Both input and output prices declined for a ninth month in April, while manufacturing employment contracted for an 18th month, auguring poorly for an economy that grew at its weakest rate for six years in the first quarter."
"An official survey released on Friday showed China's factories struggled to grow in April as domestic and export demand remained weak, reinforcing expectations that Beijing will roll out more measures to support the slowing economy."
With China continuing to experience slowed growth, many people are starting to call for more stimulus. The Chinese government promised to step up its spending to help support growth. "The central bank, which has cut interest rates twice since November and reduced banks' reserve requirements to boost their lending power, is widely expected to loosen credit conditions further." What worries me is that this is similar monetary policy that helped lead to the financial crisis in 2008. China must be careful before they realize they've dropped interest rates too far and will need to resort to other techniques to stimulate growth.
But are China's politicians overly worried? I don't think maintaining 7% annual growth is sustainable at all. For their annual growth rate to drop a little bit doesn't seem like too big of a problem. Yet.
Thoughts?
Again, as we've talked about before, China couldn't possibly maintain the kind of growth it's had forever, eventually the economy would have to slow. The policies (lowering of interest rates etc) that are being used are definitely worrisome as they do reflect what led to the start of the financial crisis. I wonder if the rest of the world will know if China is headed for a financial disaster in time to save it considering how secretive the government can be concerning the true state of its economy.
ReplyDeleteThis past weekend my uncle mentioned something really interesting about China's steel production. I did a little research and found that it complimented Alek's article nicely. "China’s steel exports rose 63% to 9.2 million tons in January from a year earlier... But as China’s growth slows, the excess steel that Chinese industry doesn’t need is washing up overseas." As some of us studied in International Trade and as all of us can imagine, a country that produces more than half of the world's steel has huge influence over the world price. So when China refuses to cut back on steel production as their economy slows (demand of steel decreases), it creates an excess amount of steel that leads to a drop in the world price. This, of course hurts our domestic steel producers greatly. But the main question is why does China think it can have continual yearly growth at high rates? Surely this 7% annual growth standard is not sustainable. I think this standard has influenced China's production decisions instead of having the demand impact the supply. Sounds like a slippery slope to me.
ReplyDeleteI believe it was inevitable, China's economy eventually had to slow down. I agree that maintaining 7% growth does not seem sustainable at all, and that should not even be an expectation for China. Yes, China can expect to keep growing, but 7% is an extremely high goal. Also, China's policies are worrisome and definitely look a lot like the policies that led to the 2008 financial crisis. Shelby made a great point about how secretive the Chinese government is about its current economic state, and how that may not allow the rest of the world to prevent China from entering a financial crisis. Hopefully this does not happen; I'm not sure the global economy could handle China entering a financial crisis right now.
ReplyDeleteI would have to agree with the posts above and say that growth was bound to slow down for China. Looser regulations are certainly worrying especially after the Crisis. I think what is most frightening is that an earlier article stated that the growth numbers may have been false, indicating that they may actually be well below 7%.
ReplyDeleteI also agree with the other posts in that China's incredibly high growth rate does not seem sustainable and a slowing in the growth rate might create a more sustainable, long-term growth rate. I wonder if some politicians in China are worried about a complete bottoming out of the growth rate or if it is more like Tyler said in that they are letting the high standard of growth influence the interest rates.
ReplyDeleteAccording to some economists, a slowing in the growth rate is not necessary a bad thing if it reflects adjustments to a more sustainable model. But the adjustments have to be supported by a strengthening in consumption, as the economy digests the investment slowdown. Hopefully this is the case in China otherwise 7% annual growth is not sustainable at all.
ReplyDeleteI agree with the above posts about the inevitable slow down of China's economy. But I'm also suspicious about the 7% annual growth that it was mentioned. If the growth rate wasn't that high, then how low could it be now as they are actually saying the economy's slowing down? Also, isn't China considering QE too (according to one of our previous blogs)?
ReplyDelete