Growth Stabilizes in China

By TJ Kim - Bondsquawk

October 22, 2012

Economic growth in China slowed down to 7.4 percent in the third quarter, the slowest growth pace since the global economic crisis. This year’s relatively moderate growth is attributed to declines or slowdowns in exports and investment spending. However, Wells Fargo’s Economics Group wrote in their special commentary that growth rate may have bottomed out and stabilized.

As mentioned before, due to weak demand from the rest of the world and slowing down investment spending, China has been growing at a moderate level, compared with those in the past years.

“First, export growth has slowed markedly over the past few quarters due to sluggish growth in the rest of the world. In addition, growth in investment spending in China also has downshifted over the past few quarters. Not only were Chinese officials worried last year by the sharp run-up in house prices, but the rise in CPI inflation also unnerved them. Consequently, authorities tightened policies to prevent the economy from overheating.”

On a positive note, slowdown in growth has placed downward pressure in inflation this year. Moreover, there have been some signs of stabilization in the rate of economic growth.

“In seasonally adjusted sequential terms, real GDP rose 2.2 percent (not annualized) in the third quarter, up a bit from the 2.0 percent rate that was registered in the second quarter. Year-over year growth rates of industrial production and exports strengthened in September from the previous month. (Growth in industrial production strengthened to 9.2 percent in September from 8.9 percent in August. Growth in the value of exports rose to 9.9 percent from 2.7 percent.)”

The current Chinese government recognizes the need to foster consumer spending as the growth based in investment spending may no longer sustain their high growth rate. Therefore, once the structural transition is made successfully, China may return to its previous hyper growth level.

Original post can be found Here

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