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Battening Down the Hatches
China’s Growth Slowest in 24 Years

The figures are in, and China’s GDP growth in 2014 was 7.4 percent, below China’s official 7.5 percent target and a 0.3 percent drop from the previous year. The Wall Street Journal reports:

China’s economy…continued to face a housing glut, soaring debt and overcapacity in many industries, factors likely to erode growth in 2015. […]

The results follow decades of growth that has hovered around 10%, one of the broadest, most rapid economic ascents in history that helped raise Chinese living standards and propel global growth and trade to new heights. Slipping economic momentum in China has had far-flung implications, squeezing Australian government budgets and Chilean copper mines that grew increasingly dependent on China’s ascent. […]

Economists see the slowdown of 2014 as the prelude to an extended deceleration of growth. The often bullish International Monetary Fund on Monday forecast 6.8% growth for China in 2015, a number below the 7.0% target economists expect Beijing to set.

The reality is likely worse than the reports suggest, since China’s official economic numbers are consistently exaggerated.

The new normal of decelerated growth will present plenty of challenges for the Chinese leadership. Xi Jinping seems to have foreseen this; as we have observed for some time, his massive party purge is in part an effort to batten down the hatches in anticipation of this socially destabilizing trend. His strategy, which is both smart and risky, is to consolidate power in his very innermost circle while pushing an old leftist agenda for citizens who might otherwise balk more at the new economic facts of life. So far, he has been successful, and has apparently built up enough power and enough leeway with the people to weather the oncoming storm.

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  • Corlyss

    They used to lie much more effectively . . .

    • Josephbleau

      East Asians have higher IQ’s, it is demonstrated. Perhaps we need a better predictor of potential in the post university world?

  • Anthony

    “Nevertheless, the International Monetary Fund’s chief economist Olivier Blanchard said slower growth seen for 2015 reflects a welcome decision by the Chinese government to rebalance the economy away from a heavy reliance on investment and exports to more a consumption based model.” Xi Jinping and Beijing may yet have to get more aggressive with prospective growth cooling.

  • Nigel Sedgwick

    Your headline is “China’s Growth Slowest in 24 Years”. I suspect we can continue with pedantic accuracy of such headlines on an annual basis, for most years in the decade or so to come.

    Consider a hot meal transferred from kitchen to dining room. The temperature of the meal will tend downwards to the temperature of the room. And the rate of change of meal temperature will decrease as the difference in temperature between the meal and the room becomes smaller.

    China, and other exciting BRIC countries, are in a similar position. The impulsive excitation caused by various forms of deregulation and step increases in trade having passed; so continued growth towards the highest possible level of economic activity for any given year will suffer from a decline in the driving force (the equivalent to temperature difference in the dining room). This is generally why the most advanced economies have (in any particular year) amongst the lowest levels of growth – and less advanced economies grow faster (when not subject to war or civil strife).

    Governmental efforts, to stimulate against this perfectly natural decline, risk slugging the totality of natural growth over the medium term. In fact China is probably now suffering somewhat from inappropriately heavy stimulus in past years.

    Anyway, let us try an avoid overzealous reaction by avoiding headlines that try to label natural trends as scary disasters.

    Best regards

  • Jacksonian_Libertarian

    When the foreign investors stopped building state of the art factories in China to take advantage of cheap Chinese labor, I knew it was all over for China. Nothing the foreign investors could do would change the lack of Democracy, Rule of Law, and Free Markets necessary to a bleeding edge culture that drives Human progress. Even now after 30 years, which saw the rise of Brands like Google, Microsoft, Apple, Intel, Samsung, Kia, Hyundai, Facebook, etc… I can’t think of a single recognizable Chinese company. China is now hitting the wall, and will go into a steadily decline, characterized by missteps like the theft of foreign property (nationalization), regulatory inhibition of foreign trade (protectionism), and massive domestic suppression (police state tactics) necessary to stay in power.

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