China’s Economy: Seizure or Cancer?

[Battle of Bach Dang River]

China’s Economy: Seizure or Cancer?
May 30, 2012

The sharp slowdown in China’s economy has policy makers around the world watching carefully. Will the government have the courage to change course

The unexpectedly sharp slowdown of the Chinese economy has fanned anxieties around the world. Based on the latest figures released by the Chinese government, the economy slowed more than expected in the first quarter of this year compared with the fourth quarter of last year. Is the once unstoppable Chinese economic growth engine grinding to a halt?

For the West, deteriorating growth in China is obviously bad news. With Europe sinking into recession and the United States mired in an anemic recovery, growth in emerging markets, China in particular, has been a bright spot in an otherwise bleak economic landscape. As the world’s second-largest economy, annual growth at high single digit (8 percent to 9 percent) makes China the largest contributor to global GDP growth. Now that China is faltering, many worry not only about the effects of China’s stagnant growth on the rest of the world, but also about its impact on China itself

China’s Economy: Seizure or Cancer? | The Diplomat

 

[kawaraj]

On the surface, the recent precipitous drop in growth in China is the result of two factors. The first is the tightening of monetary policy adopted last year to cool the real estate market and fight inflation. The second is the rapid decline of export orders for Chinese goods, a development closely associated with the escalating debt crisis in Europe.

Had the Chinese economy been more balanced between domestic demand and exports and between household consumption and investment, monetary tightening and falling exports would not have had such dampening effects on growth. But the Chinese economy is highly unbalanced (although compared with a few years ago, China’s internal-external imbalances have moderated significantly), thus making the country less able to cope with the knock-on effects of credit-tightening and disappearing external demands.

In the short-term, most analysts are worried about a possible “heart attack” for the Chinese economy. Under this nightmarish scenario, plunging growth will expose China’s highly leveraged local governments, real estate developers and state-owned enterprises to the risks of insolvency and default while China’s export sector, dominated by foreign companies and domestic small and medium-sized private firms, contracts and lays off workers. The nasty feed-back loop looks like this: falling growth will greatly reduce the financial viability of the projects in which China has overinvested in the last three years. Such projects include real estate developments, heavy industries, and infrastructure (the most infamous example being the scandal-ridden high-speed rail system). Falling growth means lower demand. These projects won’t be able to charge higher enough prices to make a profit. Because they were financed with bank debt, it’s almost certain many of these projects will default.

In most other countries, such a crash would lead to a banking crisis, hence the “heart attack” scenario.

But China is different. Because the banking system is effectively owned and controlled by the state, a banking crisis won’t materialize unless the state itself is insolvent and Chinese depositors have completely lost confidence in the state’s sovereign guarantee of its banks. This unique character of the China’s state-owned financial system is the cause of the country’s inability to allocate capital efficiently. However, in the short term, this structural flaw may turn out to be an asset in averting a seizure of the financial system.

The Chinese government has already taken measures to prevent such a seizure. Last year, Beijing ordered a one-year moratorium on repayment of loans made to local governments and their highly leveraged financing platforms, thus delaying the day of reckoning. As the economy continues to struggle, one should expect the Chinese government to extend this moratorium to give local governments more time.

thanks for sharing, it's from the diplomat I will take some notes, the full content,

 

[Chinese-Dragon]

Our official growth target is 7.5%.

In 2011, we grew at 9.2%. And in the most recent quarter of this year, we grew at 8.1%.

Still way above target.

A slowdown in long-term growth rate is a good thing for us.

We already had our three decades of double-digit growth, now we need to focus on sustainability instead.

 

[shuttler]

the author is a notorious d*ck sucker! he is a gordan chang class!

this sucker failed to mention the ample tools we have on hand to avert the risks, unlike situations in europe, india or even the us which have all run out of bullets to support their economy. if you think we only have fx reserve of $3 trillion as our backing then you are missing a lot. our pocket is deeper than the surface of the $3 trillion.

 

[Battle of Bach Dang River]

China's economy will continue to grow miraculously until 2040?
If so, no doubt she will has economy 3 times larger than the American's.

 

[SXNJ]

if China's economy collapse, vn economy will be the grave goods

 

[Fanling Monk]

The OP is a Mr Korean wannabe when it comes to China. Too bad he doesn't have the 'spin' skills and not enough vocabularies. Epic failure!

 

[Battle of Bach Dang River]

If the author has shown the diseases to repair them, Isn't it a good thing?

 

[Battle of Bach Dang River]

if China's economy collapse, vn economy will be the grave goods

I think a "collapse" will never happen.
Problem is a miraculous growth will continue?

We certainly don't want to see China's economic collapse, because if so, a larger waterfall of Chinese laborers will flooding Vietnam.

 

[shuttler]

I think a "collapse" will never happen.
Problem is a miraculous growth will continue?

We certainly don't want to see China's economic collapse, because if so, a larger waterfall of Chinese laborers will flooding Vietnam.

only that will save vietcongs from having the last nail stricken into the cover of a coffin for vietnam! Hail to Chinese Labourers saving a state from their last breath!

 

[Sin Pateh]

It is funny to see how those clownish viet trolls here whom searching for bashing trash stuffs to mock on china such as this thread.

Everybody knows how clownish (almost collapsed) vietnam's economy if compared to the china's one.

Even though a china-hater like me could easily realize how stupid and shameless on those viets false-ego.

Before showing up to here to act like a "superior" wannabe, your vietnamese should go back and upgrade yourself for not becoming a fool in people eyes.

You think you vietnam economy is as strong as japan or germnay to laugh on china about the business??? even the countries are now lagged far behind the chinese in the field...oh common, please don't downgrade this forum quality just because of your illitearte jealous, vietnamese. this is not an insulting but a serious suggession to you, be determined!

 

[Sin Pateh]

sorry viets brothers, I havw to agree with this cutest enenmy:

if China's economy collapse, vn economy will be the grave goods

the one who could challenge china in economy in this 21st is india, only one!

 

[Battle of Bach Dang River]

It is funny to see how those clownish viet trolls here whom searching for bashing trash stuffs to mock on china such as this thread.

Everybody knows how clownish (almost collapsed) vietnam's economy if compared to the china's one.

Even though a china-hater like me could easily realize how stupid and shameless on those viets false-ego.

Before showing up to here to act like a "superior" wannabe, your vietnamese should go back and upgrade yourself for not becoming a fool in people eyes.

You think you vietnam economy is as strong as japan or germnay to laugh on china about the business??? even the countries are now lagged far behind the chinese in the field...oh common, please don't downgrade this forum quality just because of your illitearte jealous, vietnamese. this is not an insulting but a serious suggession to you, be determined!

I don't think this is a topic of trash.
I posted it because it is among in "most read" on diplomat.com
Certainly it's important issues affecting the whole of Asia, even the world.
It also certainly affect my Vietnam by any way.

Who are you, if you don't wear a mask? because previously I saw you hang a Cambodian flag and a flag of a country in Africa. You make me confused.
If check your post history, you are not an Indian friend.

 

[Sin Pateh]

I don't think this is a topic of trash.
I posted it because it is among in "most read" on diplomat.com
Certainly it's important issues affecting the whole of Asia, even the world.
It also certainly affect my Vietnam by any way.

Who are you, if you don't wear a mask? because previously I saw you hang a Cambodian flag and a flag of a country in Africa. You make me confused.
If check your post history, you are not an Indian friend.

bla bla bla , the only thing viet trolls like you could do are blatant whinnings. if you couldn;t find any thing new to bailt you out from the **** you spread up here, you will blame on others. what a trash manner!

abgain, back to the topic, I am poting my finger to your face and dare you to challenge my debate above! you won't say abything because you are too shame for what i figured out above about you?

 

[Battle of Bach Dang River]

bla bla bla , the only thing viet trolls like you could do are blatant whinnings. if you couldn;t find any thing new to bailt you out from the **** you spread up here, you will blame on others. what a trash manner!

abgain, back to the topic, I am poting my finger to your face and dare you to challenge my debate above! you won't say abything because you are too shame for what i figured out above about you?

Please show me why this topic is a "trash"?

When I have time, I will peel your mask by pull out your previous comments in your history.
You certainly is not an Indian friend.