China’s official GDP figures were set to be released this week, but as of this writing, only the projected numbers have been whispered. Any and every piece of Chinese economic data in the last several months has been seized upon in much of the western media as proof that somehow China’s economy is sliding off the cliff. There are still headlines in some quarters that insist China is headed for a hard landing, and there’s usually an obligatory headline or two about an inevitable crash. When the recent mixed signals for the factory and industries came out, the manufacturing data was supposedly proof of dramatic slowing. As the numbers were more closely examined, however, the PMI for large businesses turned out to be far more robust than numbers for the smaller ones. While the Chinese economy has definitely been slowing, and the slowdown is real, it’s hard to agree with the more alarmist reads.
China GDP Source: Tradingeconomics.com
The unofficial whisper number for first quarter GDP growth is 8.4 percent. While this would be the slowest growth since 2009 for the Chinese economy, and is lower than the 8.9 percent registered in the fourth quarter of last year, it would not somehow signal the crisis that so many have predicted for the Chinese economy. The 8.4 percent figure would also be well above the target growth of 7.5 percent for the GDP as announced recently by the government. Although it’s easy to dismiss the 7.5 percent figure as lowering both the bar and the expectations on the Chinese economy, an 8.4 percent reading wouldn’t be such a bad thing.
Along with the 8.4 whisper on the GDP, the inflation rate is expected to come in at about 3.3, which is only slightly up from last month’s reading and well under the government’s targeted 4 percent figure. With inflation running relatively cool, this leaves Beijing further room to move on its policy of easing credit and monetary conditions. Despite the relatively low inflation, few observers expect an interest rate reduction in the benchmark interest rate, which stands at 6.56 percent. China has been lowering its reserve ratio requirement for its big banks, though, and is expected to consider making another move in this direction. This should loosen credit access, although in related developments following the call for reform of the big banks, the government needs to and is attempting to find ways to expand credit availability for small and medium enterprises, or SMEs, the private businesses so vital to China.
The Yuan Source: Google Image/The Epochtimes.com
In another development, the government announced it will expand its limits for foreign investment. This amount currently stands at roughly $30 billion, an amount Beijing intends to increase to $80 billion. The Qualified Foreign Institutional Investor quota, or QFII, hasn’t been a major policy initiative in terms of the numbers of dollars relative to China’s total economy, but it is a way of bringing in more investment into China from outside. This has been a very slow moving policy for China, and part of the impetus in addition to wanting to further expand the amount of foreign investors in China is to assuage some of the effects of the economic slowdown by bringing in foreign capital. Given China’s slumping export growth currently, this seems like an especially easy decision to make.
When Will Growth Pick Up?
Some observers are suggesting an outcome counter to the dire predictions for China’s economy, that growth which has been slowing in the last several quarters may be due to level off rather than continuing to fall, and resume rising even as early as the second quarter. While this is perhaps a minority viewpoint, it suggests that all is certainly not lost in the Chinese economy, even at the present. Although the difficulties with its European trading partners still exist, China is attempting to boost its domestic consumption economy, so things like the internet and personal communications devices—all manner of smartphones, personal tech and the like, should prosper. China does have rising wages, so consumers should have more to spend, and as for the rest of the data coming out, the government in response will probably continue to open the tap on monetary measures bit by bit so that growth will eventually exceed its target numbers.
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