Apr 19, 2015

China's economy is losing altitude fast - CBS News

Is China's economy finally heading for the dreaded "hard landing" that some analysts have been predicting?
The People's Republic still has a financial growth rate that is the envy of many nations. But its reported first-quarter GDP growth of 7 percent, down from 7.3 percent in the fourth quarter of last year, marks China's slowest economic growth rate in six years.
And Beijing's official figure, which some analysts question, may understate how much China is slowing. Seasonally adjusted quarterly growth in the first three months of the year was only 5.3 percent, according to Haver Analytics, the weakest pace of expansion since early 2009.
For the global economy, meanwhile, a precipitous decline in China's growth could propel the fragile ongoing recovery in the U.S., Europe and other parts of the globe into a brick wall.
Top Chinese officials acknowledge the decades-long trend of historic growth appears to be running out of steam.
"The downward pressure on China's economy is intensifying," Chinese Premier Li Keqiang told the Financial Times this week in conceding that growth could slip below 7 percent for the year. "Deep-seated problems in the country's economic development are becoming more obvious. The difficulties we are facing this year could be bigger than last year."
With its economy in danger of losing too much speed, China started lowering interest rates in late 2014 and has bee boosting spending. China watchers expect the country's central bank to engage in more easing in the weeks ahead
China's slowdown is by design, it's worth noting. For years, the world's second-biggest economy has been trying to shrink its manufacturing sector and expand its consumer services, a transition aimed at putting it on a more sustainable, if slower, path to growth.
But obstacles abound. Perhaps the most troublesome has been China's long frothy property market, which is responsible for about 20 percent of the overall economy.
Mark Williams, chief Asia economist for London-based Capital Economics, notes that residential property sales in China fell nine percent year-over-year, while inventories of unsold property rose 24 percent. While a necessary step in deflating a potentially devastating real estate bubble, that has crimped consumer spending, which combined with many Chinese people's propensity to save has weighed on the economy
"A prolonged period of property weakness has long looked inevitable," he said in a recent research note, "given that property completions had accelerated ahead of likely growth of property demand based on factors such as demographics and urbanization."
China's economic challenges are magnified because they are unfolding as China undertakes a historic urbanization plan to move tens of millions of people to its cites in the next decade or so. The Economist, quoting the E-House property consultancy, projects that at the current sales rate it will take about a year-and-a-half to clear China's current inventory of new homes.
But slowing economic growth also means slowing housing sales, which could further drag down the overall economy.

No comments: