STAFF NEWS & ANALYSIS
China's New Economic Efforts in a Long March?
By Staff News & Analysis - April 15, 2013

Disappointing Chinese growth figures spook markets … An unexpected slowdown in China's economic growth has cast fresh doubt over the strength of its recovery, sending jitters through the stock markets. Chinese GDP grew by an annualised 7.7pc in the first three months of this year, down from the previous quarter's 7.9pc growth, according to official government figures. Analysts had hoped for 8pc growth. The disappointing figures, driven largely by weaker-than-expected industrial production, dragged on markets in Asia and elsewhere, led by commodities sell-offs. Hong Kong's Hang Seng fell 1.43pc and the Shanghai Composite dropped 1.13pc overnight. – UK Telegraph

Dominant Social Theme: China is on the way up and nothing can stop her …

Free-Market Analysis: Everyone knows that China is going to take over the world but ìs such an event going to be the result of a "long march" or a short one? The current numbers on the economy show us once again that it is not easy to build a world-class economy year-in and year-out.

What happened to China was that Western economies collapsed, which wiped out China's target market. Accordingly, Chinese leaders deemed that the Chinese themselves would have to pick up the slack.

As we have regularly pointed out, cultures rarely turn around quickly or easily. The Chinese as a group are probably happier aiming consumerist efforts at the West than the participating in conspicuous consumption themselves. And perhaps this is reflected in the latest figures …

In Europe, the FTSE 100 fell 0.94pc, the French CAC dropped 0.68pc and the German DAX slid 0.67pc on Monday morning. Mixed signals from the economic giant in recent weeks have suggested that recovery in the economic giant remains fragile.

An apparent import boom fuelled hopes of growing Chinese consumer demand – considered a pillar of robust recovery amid sluggish growth in China's key trading partners, the US and EU – but the picture was muddied as inflation fell in March.

Such patchy figures have led analysts to question whether China's growth is still dependent on government spending and lacks the strong underpinning required from increasing consumer demand.

Slower spending on factories, real estate and other fixed assets, which rose 20.9pc in the first quarter, down from the 21pc rate for the first two months of the year. shows the economy suffers from structural problems, such as excess production capacity in some industries, according to Societe Generale economist Wei Yao.

"Given all this credit injected into the system, the future should look better," he said. "Nevertheless, the level of efficiency in the economy has declined. The same amount of money will no longer produce the same amount of growth."

You can see the words "consumer demand" scattered throughout the above report. It is consumer demand that drives a growing economy like China's. It is consumer demand that provides the engine and if the consumer demand is not coming from overseas, it has to come from the Chinese themselves.

This is China's big bet and it is not by any means a foregone conclusion. Price inflation, the value of Chinese real estate and the viability of the tens of millions of small businesses that feed off of Western demand all come with numerous questions attached these days.

Even the numbers we receive from China must surely be suspect, given they are issued from Party outlets that have what may be termed an affirmative obligation to continue to provide a positive trend that has arced upward for some three decades now.

Predicting the decline of an economy so large as China's is never an easy proposition. But the numbers coming out of China are consistently softer than they once were, at least for now, and the challenges seem a good deal more substantive.

We are told, of course, for a variety of reasons that the Chinese economy is fairly impregnable. But until 2007, the same sort of beliefs were attached to Western economies, especially the US's.

After Thoughts

All that is certain when it comes to modern economics and economies is … change. And China may be changing, too.

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