The Global Economy in Turbulent Times

CHAPTER 138 China: Economic Slowdown: A Cause for Concern?¹

Review just about any recent economic-social indicator coming out of China. They point to a clear slowing down of activity, reflecting poor exports and sluggish business performance, and increasing signs that credit-driven growth has run its course. China and ASEAN-5 (Indonesia, Malaysia, Thailand, Philippines, and Vietnam) have been providing the much-needed lift to the slackening global economy as US recovery stays stuck in the mud, with eurozone still mired in recession. I sense China’s growth in the second quarter of 2013 to be around 7.5 percent, its slowest pace since the third quarter of 2012, as weak demand dented manufacturing output in the face of much excess capacity and weak margins, and slowing investment outlays.

The continuing weak global outlook (growth has since been further cut by the International Monetary Fund) is making life hard not just in China but also for ASEAN-5 exporters and manufacturers. In addition, recent turmoil in China’s interbank market added acute stress, prompting central bank intervention to restore order and stability. The unprecedented money market crunch, which saw short-term interest rates spike to record highs, will eventually feed into the real economy through higher interest rates. This will further dampen growth, since higher borrowing costs will eventually shed jobs and lift unemployment, which is an important consideration in making policy. But the new leadership has ...