China to world economy: I’ll save you!

Where Facebook faltered, China has attempted to pick up the slack. Stock markets around the world jumped this week after the country cut key interest rates for the first time since 2008 in an effort to breathe life into the world’s zombified economy.

France 24, via AP, reported that growth in China slumped to 8.1 per cent in the first quarter of 2012, a three-year low:

“The interest rate on a one-year loan will be cut by a quarter percentage point to 6.31 percent effective Friday, the central bank announced … but private sector analysts expect this quarter’s growth to fall further.

‘The changes indicate mounting concern in Beijing over slowdown of growth,’ said Credit Agricole CIB economist Dariusz Kowalczyk in a report.

The government has said it will pump billions of dollars into the economy through spending on building low-cost housing, airports and other public works. It also has approved a wave of major investments by state companies.

However, communist leaders are moving cautiously after their huge stimulus in response to the 2008 financial crisis fueled inflation and a wasteful building boom.

After spending two years tightening lending and investment curbs to cool an overheated economy, the government reversed course in December after exporters were hit by a plunge in global demand for Chinese goods.”

The China Daily’s US edition reported that, although stock markets in the US and Europe opened higher after the cuts were announced, China is still wracked by uncertainty:

“Since the fourth quarter of 2011, the central bank has cut reserve requirements for banks on three occasions, to inject more liquidity into the market by allowing banks to lend out more. It cut the requirement in November for the first time in three years, cut it again in February and also last month.

A key index indicated a worsening slowdown last month.

The purchasing managers’ index, a gauge of manufacturing activity, expanded at the slowest pace in six months in May.

A separate PMI from HSBC reported a contraction for seven straight months, the longest since the financial crisis erupted in 2008.”

The Globe and Mail’s Pav Jordan had further sobering analysis. Although the surprise cuts may offer some slight improvements, it might take longer than expected to see dramatic results.

“Economists expect the optimism will be short-lived, because the Chinese stimulus will take time to ripple through the Asian economy and then the rest of the world. It could also be a sign that China is more than just a little concerned about the state of its economy.

‘What it tells me is that the Chinese officials are quite worried about where their economy is going,’ said Bart Melek, head of commodity strategy at TD Securities Inc. in Toronto. ‘I would say that this necessarily does not bode well for commodities over the next few months. Ultimately monetary policy takes a while to have an impact.’

China has been the growth engine that powered commodity prices to record highs over recent years as it underwent massive urbanization in the years leading up to and following the 2008 Beijing Olympics. The main staging stadium for the event, the so-called Bird’s Nest Stadium, took five years to build and used 42,000 tonnes of steel.

But growth has slowed in the giant Asian economy, especially in the past year as it matures and embarks on fewer giant infrastructure projects. Commodity prices, while still high, are down from record levels, hurt too as the economic crisis in Europe put China’s biggest export destinations virtually out of commission.”

What do you think? Will the bold move improve the world economy, or is China starting to scramble like the West?

Read more about China, America, France and the world beyond in the latest edition of Carnet Atlantique.

Advertisements
This entry was posted in China, Economy, Politics and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s