Monday, October 20, 2008

Chinese economy growth rate slows

Globalization has ensured that the crisis that started in the US subprime market was not contained in the US but has spread all over. China announced the 3rd quarter growth which was once again lower than the previous one:

China's economic growth rate has fallen for the third quarter in succession, amid fears that the economy could be heading for a severe downturn.

The National Bureau of Statistics said the economy had grown at a rate of 9% in the three months to September.

...(This) marked a significant fall from the 10.4% growth of the first half of 2008, and the 12.2% growth seen in the first three quarters of 2007.
One could wonder how could a 9% growth rate be an issue! Well, it sure can. Dani Rodrik wrote this two weeks ago:

When other countries experiences financial crises, they lose a few percentage points of GDP and they get it over with. A lot more is at stake in China. China's precarious social balance and political stability hinge on continued high growth. Derail that growth engine, and you could have some really scary consequences that will affect 1.3 billion people and their neighbors.
What are the indicators that point to the slowdown and what are the Chinese authorities doing?

Correspondents say indicators from steel prices to housing sales suggest a severe economic slowdown could be in prospect.

Chinese factories are reporting that export orders are down sharply. Last week, the government said that half the country's toymakers had gone out of business.

Mr Li said the government had initiated timely measures to deal with the economic slowdown and cushion the impact from the global credit crisis, including falling exports and a restricted credit supply.

These included changing its focus from preventing the overheating of the economy and preventing structural inflation to the "preserving growth" and "controlling" inflation, he added.

Officials said over the weekend that the government was preparing to announce tax cuts and increased infrastructure investment. Curbs on the housing market in certain areas may also be relaxed. The People's Bank of China has cut interest rates twice and reduced banks' required reserves since mid-September. A third interest rate cut is expected later this year.
Read the BBC article about the new growth data here and read Rodrik's 'The other shoe drops' post here.

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