ANALYSIS: China's blip is little to worry about
China has largely navigated its way through the global economic crisis and multinational fashion firms are increasingly reliant on the country for growth, which is why a sign of weakness in the country’s second fiscal quarter has left investors a little unnerved.
The Chinese economy grew at 10.3% in the second quarter of this year, compared to 11.9% the year before, as Government efforts to cool the housing market and infrastructure investment began to bite. For investors, the slowdown comes as many are looking to China to sustain a global economy that is still faltering in the US and Europe.
"Vast accumulation of foreign reserves"
Earlier this year, the World Economic Forum’s Global Risk Report 2010 warned that any loss in China’s growth momentum could adversely affect global capital and commodity markets.
"The Chinese government faces a number of challenges," the report noted. "The need to increase domestic demand to counter the loss in exports and the need to maintain a stable Renminbi [currency] given China’s vast accumulation of foreign reserves.
"The implications of a fall in China’s growth would be particularly acute for its trading partners if it should happen before the global economy is on a more resilient path."
With Europe facing a fresh banking crisis and unemployment in the US still double what it was in early 2008, it is safe to say that the global economy has not yet reached that resilient path.
"Slowdown towards more sustainable growth"
China’s Premier, Wen Jiabao, attempted to allay fears this week, putting the second quarter sluggishness down to the Government’s intervention to slow down the country’s rapid expansion to a manageable pace.
"China’s economy in general is in-line with the government macroeconomic regulation and control," Wen said. "Major efforts will be made to handle the relations among maintaining steady and fast growth, restructuring the economy and managing well the inflation expectations. China will continue to adopt a proactive fiscal policy."
However, Qu Hongbin, an economist for HSBC, said the predictions about a hard-landing in China were "overplayed", adding: "This is just a slowdown towards more sustainable growth, not a meltdown."
While analysts have focused on the slowdown, China's exports and consumption have remained robust, with the Government also announcing this week that retail sales grew by 18.3% in June compared to the same month last year. Exports, meanwhile, rose by 44% in the month.
So is there really anything to worry about?
"Chinese economic news never disappoints in its ability to be conflicting and confounding," said Gady Epstein, Beijing bureau chief for Forbes magazine. "As a general rule, don't believe anybody who says they know for sure, but I'll venture to say it is not time to worry yet."
Indeed, China is likely to drive global growth for years to come and businesses across the globe are positioning themselves for a surge of thirsty, middle class consumers over the next 20 years.
If anyone can ride out a rough current right now, it would appear to be China.
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