Is China’s Economy About Ready To Nosedive?

Is China’s Economy About Ready To Nosedive?
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The Chinese government recently released a barrage of economic data. Investors and business leaders looking for good news, however, were disappointed when the economy data failed to meet expectations and instead pointed to a weakening Chinese economy.

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China’s economy, however, may now be the world’s best hope for growth in 2014. With the Eurozone’s recovery being nothing more than weak and tepid, and the U.S. showing stability but lacking overwhelming strength, analysts have been hoping that China could be the world’s engine of growth.

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The recently released information, however, suggests that China itself may be on weak footing, and with the Chinese government looking to avoid expensive stimulus plans, the implications for the global economy could be serious.

China’s economy showing weakness across a range of indicators

The government of China released a wide range of information regarding the state of the Chinese economy. Unfortunately, most of the indicators released were weak and now many are beginning to question whether or not the government will reach its goal of a 7.5% growth rate this year.

Industrial output grew, but the growth has slowed from previous years. In January and February growth slowed to 8.6%, down from 9.7% growth in December. This reading also marks the lowest reading since 2009, when the world was still recovering from the financial crisis.

Growth in fixed-asset investments also slowed to 17.9% YOY. While this number might appear solid to some outside observers, it’s worth noting that this actually represents the lowest growth since 2002. Residential and commercial real estate sales fell 3.7% to $115 billion dollars, which is a major concern given that real estate development is one of the biggest drivers of the national economy but many are fearing that a bubble may have built up.

Consumer spending drying up

Perhaps the biggest concern, however, is the slowing growth in the retail sector. China has been working to shift its economy from one dependent on export growth to one that can rely on domestic consumption. Doing so would make the Chinese economy less dependent on other countries. And as demand in China grew, exports from other countries would rise, helping to spur economic growth across the world.

The recently released data, however, suggests that growth in the retail sector is slowing sharply. Since 2010 retail growth has hovered near or above 20 percent as the government’s efforts to encourage domestic consumption appeared to be paying off. Now, however, retail sales have slowed to 11.8 percent.

A slowdown in consumer spending could have dramatic impacts on the rest of the economy. Both the manufacturing and services sectors could take a big hit if consumers close their wallets. As China makes many of its own consumer goods, any slow down in local consumption would be especially hard felt.

Slowdown in China could threaten global economy

China has emerged as perhaps the best hope of establishing a strong global economy. With consumers in Europe and North America suffering from a stagnant economy and high debt levels, and governments across the West facing deficits, China is one of the last few major countries that appears to be on solid footing. Of course, now that footing may not be as solid as once thought.

Growth in China can have a huge impact on countries across the world and especially Asia. While Asia has been arguably the world’s most successful economy, that success now appears to be at risk of faltering. Countries across East and South East Asia would be at risk of taking a hard hit if China’s economy does indeed stumble.

Of course, China is far from falling into a recession. While the recently released data did measure a slowdown, the country’s economy is still growing, and growing at a rate envious for most countries. China can afford to suffer a less-than-stellar year, so long as the country itself doesn’t fall into a full blown recession.

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