China’s abnormally low 8.1 percent GDP growth in the first three months of the year was initially viewed as insignificant. Many China watchers thought the economy would quickly return to the heady days of 9–10 percent growth, but industrial production, investment, retail spending, and trade data have all been much lower than expected. Even other economic measures, such as electricity output, rail cargo and bank loans, have slowed considerably. The bulls are beginning to retreat.And now, according to reports from the Financial Times, China’s manufacturing sector is experiencing a similar deceleration:
The official purchasing managers’ index for manufacturing fell to 50.4 in May, its lowest in five months, from 53.3 in April. Although it was the Chinese PMI’s sixth straight month above the 50 level, which signals an expansion of activity, the fall in the index highlighted a clear slowing of growth momentum. . . .“The big decline in new orders indicates that new business activity will decline, leading to a continued fall in economic growth,” said Zhang Liqun, an economist with the Development Research Center, a think-tank under the cabinet.
The host of poor April data had led to speculation about another round of government stimulus, similar to what was introduced in 2008 and 2009. But Beijing quashed those rumors. With the Chinese economy still dealing with high inflation and troublesome bank debts from the last round of stimulus, the government will have to dig deeper into its policy toolbox this time.While it is too soon to announce the end of the era of double-digit growth for the Chinese economy, the forecast gets cloudier by the week. Where China goes from here, and how it handles the political and social ramifications if its economy is indeed entering a new phase of lower growth, will be one of the defining stories of 2012.