China's economic slump not good for Asia or US

Article posted: 7/14/2012 7:36 AM

	Two women stand in a lift near an advertisement board in Beijing?s Central Business District on Wednesday. China?s latest economic data indicate a deepening slowdown that is adding to pressure on communist leaders to revive growth and avert job losses and political tensions. ? Associated Press
	A construction worker labors on a high-rise building while part of an advertisement board is seen in Beijing?s Central Business District on Wednesday. China?s latest economic data indicate a deepening slowdown that is adding to pressure on Communist leaders to revive growth and avert job losses and political tensions. ? Associated Press

BEIJING ? China?s economic slump is its deepest since the 2008 global crisis and could hurt Chinese demand for imported oil, iron ore and industrial components. That could dent hopes abroad that a robust China will drive global sales at a time of anemic demand in the United States and debt-crippled Europe.

The latest economic data point to a deepening slowdown that is adding to pressure on China?s leaders to revive growth and avert job losses and political tensions.

The communist government has responded by easing curbs imposed in 2010-11 to cool an overheated economy and inflation. Beijing has cut interest rates twice since the start of June and announced other stimulus measures.

But forecasters don?t expect the world?s second-largest economy to rebound until at least the second half of this year. Premier Wen Jiabao warned last weekend that the economy faces ?huge pressure? to slow further.

Here are some questions and answers on the Chinese slowdown and why it matters to the world:

Q: What Chinese data have been released and what do they tell us?

A: Two major indicators released this month show June manufacturing growth fell to its lowest level in seven months and growth in June imports fell by half from the May level to 6.3 percent. That suggests China?s economic growth is slowing further after declining to a nearly three-year low of 8.1 percent in the first quarter of the year. That would be in line with the government?s official target of 7.5 percent this year, but the abrupt slowdown and weakness in auto sales, retail spending and other areas in recent months has fueled fears growth might fall farther than expected, causing job losses and possible unrest. Consumer inflation fell to just 2.2 percent in June, giving Beijing more room to stimulate the economy with less danger of igniting rises in politically sensitive living costs.

Q: What data are yet to come and what will they tell us?

A: The most closely watched indicator ? quarterly economic growth ? is due to be reported Friday, along with June retail sales, factory production and investment. Private sector forecasts say overall growth could fall as low as 7.3 percent ? a strong number compared with the United States and Europe but well below 2010?s 10.5 percent expansion. Analysts expect China to achieve a ?soft landing,? with growth rising again as early as the second half of this year. But some say that if the latest growth number is near the lower end of forecasts, Chinese leaders might feel compelled to reassure companies and financial markets by loosening credit controls further or announcing other stimulus measures.

Q: What does this mean for the world?

A: The slowdown is a setback for economies from the United States to South Korea to Africa that are looking to China to drive global demand. China is the top export market for Australia, South Korea, Thailand and other countries and a fast-growing market for consumer goods from iPads to movie tickets. A sharp decline in Chinese growth and demand could send shock waves through the economies of its trading partners. Asian countries and commodities suppliers would be hit first, but if that cut into their demand for machinery and other goods, the impact could spread to the United States and Europe.

Q: What is China?s government doing in response to the slowdown?

A: Chinese leaders have rolled out a series of initiatives, cutting interest rates twice, lowering gasoline prices, spending more on building low-cost housing, airports and other public works and increasing investment by state-owned companies. The government is moving cautiously after its huge stimulus in response to the 2008 global crisis ignited inflation and a wasteful building boom. It says it will keep in place curbs imposed on real estate purchases to cool surging housing costs. Some private sector analysts warn that pouring more money into state industry, while a quick way to channel money into the economy, will set back efforts to reduce reliance on investment and nurture more dynamic private companies.

Q: What does this mean for China?s domestic politics?

A: Job losses are always bad news for the ruling Communist Party, eroding economic gains that underpin its claim to power. But the timing of the latest slowdown is especially awkward for the party, which is trying to enforce calm ahead of this year?s once-a-decade handover of power to younger leaders. The party already faces resentment at the wealth amassed by families of Communist leaders. More job losses could fuel those sentiments and add to pressure for political change.

Source: http://dailyherald.com/article/20120714/business/707149949/

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