China Slows Down by Own Standards - Analyst Blog
08 Dicembre 2011 - 4:06PM
Zacks
The march of the Chinese dragon is relentless. However, it is
not immune to the economic morass of its major trading partners and
is experiencing a slowdown in growth rate that is more rapid than
anticipated. Consequently, the government is implementing economic
and social confidence-boosting measures.
The achievements of the Middle Kingdom are impressive: the
second largest economy, the biggest exporter, the most foreign
reserves and rising per capita income. The Chinese currency may
even challenge the U.S. dollar, eventually, as a reserve
currency.
Yet for all its successes, there were several imbalances in
China’s model of a mixed economy. Firstly, having seen the Asian
Tigers (Hong Kong, Singapore, Korea and Taiwan) taste success with
an export-driven growth strategy, China followed suit. China’s
success at exports is exemplified by medical device maker
Mindray Medical International Ltd. (MR).
Secondly, huge investments and hyper-lending created asset
bubbles a few years ago. Consequently, the government went into
firefight-mode to cool the overheated economy. The first signs of
success appeared last summer with Premier Wen Jiabao announcing a
slowdown in inflation, which was followed by a cooling off of
property prices.
However, the government’s search for a Goldilocks economy -- not
too hot, not too cold -- may have backfired somewhat. Latest
statistics indicate that exports to the EU slipped 9% year over
year while U.S.-bound exports dropped 5% last October. While
overall export growth was sharply lower on a month-over-month
basis, the composite growth rate at 15.9% was still respectable,
partly on account of buoyancy in Latin American markets.
There are other telltale signs of a slowdown. The economy grew
at 9.1% year over year during the June to September period, which
represents the slowest growth rate in the past couple of years.
Then, in November, the Purchasing Managers’ Index (“PMI,” a gauge
for manufacturing sentiment) touched 49, its lowest point since
2009. In fact, it was the first time in nearly three years that
this measure breached the critical 50 level downward.
The Chinese government has reacted to the challenges. Earlier
this month, it cut the cash reserve ratio to infuse liquidity.
Among other measures, a politburo member has asked local officials
to enhance their social management skills in order to curb labor
unrest and strikes.
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