China is slowing. That’s good news
July 16, 2010

China is the only country in the world right now where a slowdown in the economy is hailed  as a positive sign by analysts worldwide.

The national Bureau of Statistics revealed China’s half-yearly figures quoting an expected gradual slowdown in the market which seemed to have single-handedly buoyed the global economy. According to the statistics, China’s Jan – June GDP grew by 10.3 percent, slower than its growth in the previous quarter (11.9 percent), but not too much slower (see chart). Inflation also eased, falling back below the central bank’s official target of 3 percent, thanks partly to cheaper fruit and vegetables. According to the numbers released which will be studied carefully to gauge the future course of the Chinese economy, consumer prices fell to 2.9 percent in Q2, 2010 against a growth of 3.1 percent in Q1, producer prices lowered to 6.4 percent in Q2 against 7.1 percent in Q1, Industrial output in Q2 registered a drop to 13.7 percent from 16.5 percent in Q1 and retail sales dipped to 18.3 percent from 18.7 percent in Q1, 2010.

In strategically reducing stimulus spending over the last few months, stiffening mortgage rates and raising down-payment requirements Beijing has also successfully thwarted a property bubble which was threatening the balance-sheets of households, banks and local governments alike. Experts now believe that China will use this time to stabilize its economy, develop its domestic economy, reduce dependance on exports, reign in non-performing loans, and work towards developing a more harmonious regional cooperation in Asia.

While the slowdown is considered healthy for an economy that grew at a blistering pace, analysts hope this will not impact global iron and steel, commodity and building material prices worldwide. Because China has been purchasing huge amounts of commodities, they have been controlling global prices, the numbers might signal a cool down in some commodities such as coal and oil whose prices had soared in recent weeks.

Nonetheless, economists in India are not perturbed with the slowdown, nor do they feel that India’s trade which consists of mainly raw materials with China will be affected. “The decline in factory output reveals that the Chinese economy is more vulnerable to global developments. I expect Indian exports to remain largely unaffected as trade between the two countries is not very significant. But the long-term trend indicates that both India and China will continue to register high growth”, DK Srivastava, Director, Madras School of Economics told the Economic Times.


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