CHINA: SLOWDOWN OR REBOUND?

CHINA'S ECONOMY IS ON THE REBOUND

Dan Steinbock

China Daily, July 9, 2012

For two years now, the prophets of doom have forecast that China is heading for a hard landing. But while China is not immune to the debt crises in the West, it is better positioned to cope with them.

Last Thursday, the People's Bank of China lowered the benchmark deposit rates by 25 basis points and cut lending rates by 31 basis points; the second time in a month. The cuts fueled concerns that there is more trouble ahead for the Chinese economy.

In fact, there is a lot of noise in the markets and three macro trends complicate the picture. Economic conditions are deteriorating in Europe, the hoped-for recovery is slowing down in the United States, and China's economy has been weaker than anticipated in early spring.

But what we may be witnessing is a bottoming out.

At the recent euro summit, the region bought time, yet again. Last Thursday, the European Central Bank cut its interest rate to a historic low of 0.75 percent, and its overnight deposit rate from 0.25 percent to zero. However, these measures will not have an energizing effect on the eurozone, instead, they indicate that the ECB's ammunition is being exhausted.

In the US, job creation continues to slow, and unemployment remains at 8.2 percent. The number of unemployed Americans is 12.7 million and if the temporarily unemployed are included more than 23 million. Moreover, Washington has deferred critical economic decisions and a potential "fiscal cliff" until after the 2012 elections, even though the national debt is now close to $15.9 trillion.

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