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Has China’s Great Deceleration Begun?

For years, analysts have been predicting that China, like Japan before it, would experience a rapid slowdown in growth after its initial economic burst. While it’s still too soon to tell if that is happening, some recent data is suggestive. CNBC reported Sunday that China has revised its growth targets down to 7.5 percent for the year, its lowest target in nearly a decade. On top of this, the inflation target remains relatively high at 4 percent, despite the fact that the Chinese economy consistently failed to meet this target last year, as rapid price hikes shook the nation.

For the past decade, China’s rapid growth has given the government legitimacy and kept unrest to a relative minimum. If this is indeed the beginning of a slowdown in China, the country is about to enter a new and very different era.

China is appointing a new President at the end of the year. He’ll have his work cut out for him.

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  • alex scipio

    Understanding China without understanding its demographics seems difficult. China, net, is down 40MM females in theri child-bearing years. This is due both the their one-child policy and gender-selective abortion. But it means 40MM males without a mate – which nearly always has meant war – and it means a decrease in consumerism that will NOT be driving their domestic economy. No consumers = no purchases = no manufacturing = no tax revenue = economic doldrums. China is following Europe, Japan and the islamic world into the demographic death spiral. 40MM fewer females this generation – 80MM fewer next generation,160MM fewer in 40 years… and another 160MM missing men, the never-born male offspring of the never-born females.

    In the meantime only America has anything close to a flat or barely-growing population. Which means future taxpayers to pay for the debt Democrats are ringing-up now. Of course only Conservatives are having kids to pay for the excesses of the Blue states, only two of which are above 2.1 fertility rate (replacement rate), and they are NM and NV, hardly populous states. So what this means is that future jobs and future tax revenues are banking on American Conservatives continuing to have fertility well over 2.1. (Only 3 Red States are below 2.1.) It is these kids who will buy China’s manufactures, pay American debt, and pay for the enormously selfish entitlement demands of today’s Blue voters.

    Kinda makes ya wonder why Sebelius &Co are doing all they can to reduce the number of births… who do they think will PAY their bills? You want to see a real civil problem – wait until the Blue fertility rate hits 1, and parents in the Center and Right learn that they and their kids are paying for all this stuff they don’t want, and that Blues are not paying their “fair” share by not populating the future generations stuck with the bills for their appalling profligacy with OPM.

  • Alex Weiner

    Given the amount of Leverage the average SOE is China has geared into its’ balance sheet at the moment, a very sudden drop in asset prices could very quickly (less than a week) snowball into a credit freeze of similar magnitude to what happened in 2008. However, China’s less developed financing mechanisms mean this could lead to widespread agricultural and manufacturing unemployment far worse than was seen in the PIIGS or in America/Japan during their crises. The social implications of this would catastrophic for both the country and the communist party, unless the PRC immediately offers wholesale trade credit and food subsidy support and hopes it doesn’t lead to double digit inflation.

  • Kris

    alex@1: “who do they think will PAY their bills?”

    Après nous, le Déluge.

    [Oh dear. I wouldn’t want to be the intern responsible for the headlines. First “Undewhelmed” and now “Decelertion”?]

  • MarkE

    One way to cut inflation in the Middle Kingdom would be to increase supply of goods in services at home. Although if markets are unconstrained, the internal market should produce this result if government stands aside just a little. The political structure may be too fragile or rigid to handle this. Why haven’t they done this already?

  • http://None Jerry Arnold

    China is closing in on being caught between the Scylla of rising expectations and the Charybdis of Party intransigence. Hark! Is that the sound of the Mandate of Heaven being lifted that we’re hearing?

    My feeling is that China is about one major non-natural catastrophe away from political meltdown. The Chinese people and government can be very resilient when dealing with natural disasters but such things as a major uprising in West China, the collapse of the Three Gorges dam, or even something as relatively trivial as the collapse of the Shanghai Tower, for three instances, could prove to be the crack in the rigid structure of Chinese Communism which would bring the whole edifice down. I think we could posit that an Iranian nuke would immediately pale by comparison (but Israel would be forced into a preemptive strike on it).

  • Mrs. Davis


    It will not last beyond 1 lifetime (80 years).

  • Mark

    Premier Wen’s comments have been misunderstood, in that the 7.5% target mentioned is a floor, not an estimate. Over the past years, 8% has been the floor target, and GDP growth has been much higher, so we have every reason to expect that growth this year will be higher.
    Next year, and years past that, are a serious concern. The government has spent a lot of time talking about adjustment to a consumer-led economy, and the planks of Premier Wen’s speech outlined some of the programs that he expects to ease the transition.
    Easier said than done.
    China’s economy is still heavily reliant on exports (maybe not for growth, but that misses the point) and investment. By any measure, consumption is paltry. China’s biggest cheerleaders (Morgan Stanley) maintain that China’s economy is as much as 25% bigger than official statistics report, and that the transition to a more consumer led economy is much further along than many believe, but assuming that’s true, that still leaves consumption as only 40-44% of GDP. Tough economic times such as these are not going to increase consumption naturally, either.
    Just like the promises we continually hear of making the yuan convertible/opening the capital account, moving the economy to one which has a higher proportion of consumption would mean essentially reforming or severely curtailing the institutions which are the bedrocks of the communist party. Put me in the ‘show me’ camp who want to see it happening before I believe it’s possible.

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