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Posts Tagged ‘China economy slowdown’

China’s Economic Slowdown: Why Stimulus Is a Bad Idea

Posted by Ram Kumar Shrestha on July 30, 2012

What Beijing needs to spur growth is not greater spending or easy money, but fundamental reform
Soo Hoo Zheyang / Reuters

SOO HOO ZHEYANG / REUTERS
A flour vendor naps as he waits for customers in front of his stall at a wholesale market in Beijing on May 11, 2012

Anyone who thought China was impervious to either the perilous state of the global recovery or the laws of basic economics should take a look at the data streaming out of the country in recent months. GDP growth in the second  quarter slipped to 7.6%, the slowest clip in three years. Manufacturing output and exports have been weak and the property sector has stalled. The IMF recently lowered its forecast for China’s growth in 2012 to 8% — which would be the economy’s worst performance since 1999. And with the sagging data have come louder and louder cries for greater government stimulus to pump up growth, as Beijing’s policymakers did successfully after the 2008 financial crisis. “There’s lots more the government can do to ratchet things up,” HSBC said in a recent report.

That’s exactly what China doesn’t need, however. Government policies to greatly boost growth will only exacerbate the percolating dangers within the Chinese economy — dangers that could even result in an economic crisis. Instead, the current slowdown shows how badly China needs a new growth model, and the reform necessary to build one.

(MORE: Why China Should Slow Down)

For several years now, economists have been warning that China’s growth is unbalanced and, therefore, unsustainable. The economy is too dependent on investment and exports to drive growth, they argue, and to fix that problem, Beijing has to do more to encourage domestic consumption as another pillar of development. Not much has really been done to “rebalance” the economy, however, and sometimes it seemed that didn’t much matter. As the economists babbled, the economy continued to grow. Read the rest of this entry »

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