CHINA’S SLOWDOWN: CONSEQUENCES

THE CONSEQUENCES OF A SLOWING CHINESE ECONOMY

Anthony Fensom

The Diplomat, September 13, 2012

It’s the 1 trillion yuan question: has China’s economic bubble finally burst?

It’s an unnerving issue for the global economy, particularly at a time when the presumed leader in waiting, Xi Jinping, has apparently gone “missing in action” just a month ahead of the once-in-a-decade leadership transition at the 18th Party Congress.

After clocking up an average 10 percent annual growth rate for 30 years, this year’s forecast for the Chinese economy is 7.5 percent, its lowest expansion since 1990. In August, industrial output growth dropped to its lowest level since May 2009, imports dipped 2.6 percent and steel output is expected to contract this year for the first time in three decades.

The recent 1 trillion yuan ($160 billion) infrastructure package announced by China’s top economic planning agency gave financial markets a brief bounce, but it was only a quarter of the amount spent in response to the global financial crisis. Among the 60 projects announced by the National Development and Reform Commission were urban rail, highway and water projects, yet little detail was released concerning their financing and the spending is expected to be spread out over a number of years.

An economy described previously by Chinese President China's economy is slowing. It can only mean bad news for the Asia-Pacific, and the global economy. as having a “lack of balance, co-ordination and sustainability” is still overly reliant on fixed asset investment, which accounts for at least half of GDP, as well as exports.

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