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CHINA ECONOMY - HOT OR NOT?

posted 11 Jun 2012, 03:56 by Mpelembe Admin   [ updated 11 Jun 2012, 03:56 ]

A raft of Chinese data over the weekend confirmed worries that China’s economy is slowing. Now China must face up to key risks including rising wages, a growing debt pile and the Eurozone debt crisis, if it wants to keep its superstar economy status.

ASIA-BUSINESS ASIA - Hot or Not?

A string of fresh indicators show China's economy is undergoing what analysts have referred to as a "slowdown."


But China is still expanding at about 8 percent a year. That really is breakneck speed when you consider this: The US economy is growing at under 2 percent.


Head of Asian Multi-asset, Baring Investment Management, Khiem Do, SAYING: "Relative to the rest of the world China is still a very strong growth economy - there is not doubt about that....but compared to what it was - compared to the growth rate it clearly has decelerated."


China has lurched from near isolation to global player in just decades.


It imports vast amounts of commodities from other continents to fuel its factories and build gleaming new office towers.


But a few notable changes are stunting China's thunderous advance. here's a list of what's hurting the country:

The era of abundant cheap labour, i.e. factory workers earning peanuts, is ending. Wages in urban areas are rising by over 10 percent per year.


Some factories in southern China have shut down. They simply can't afford the higher labor costs.

China is also struggling to shift from being dependent on exports to nurturing its own trade.

Despite all the talk of extravagant luxe purchases for the small percentage of newly rich, overall consumption is weak.


Investors were ploughing money into apartments as they moved into cities but overbuilding has led to a steep slowdown in the property market


Beijing has one major card in its hand to keep growth ticking at a healthy pace. It's a state driven economy. When it faced a slowdown back in 2008 - it pumped 4 trillion dollars into infrastructure projects.

But fast forward a few years and the situation looks a bit different. Local governments have piled up over a trillion dollars worth of debt after a major spending spree.


Chief Economist for Greater China, Mirae Asset Management, Joy Yang, SAYING"I think to some extent you could call it a timebomb in China..According to our calculation the credit stock in the banking sector is already 140% of GDP. That's actually quite high relative to other countries in Asia."


And along with its rising global influence, China's grown more interdependent with the rest of the world. Europe is it's biggest trading partner. About a quarter of its foreign reserves are in the euro.


Proof that the fate of China's economy and global growth are now intertwined.

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