China's 8% Growth Dream Is Gone

Earlier this year, China’s prime minister said the country’s GDP would be up 8% in 2009. He used the forum for making the prediction as an opportunity to press the advantage of his economic system over the faltering economies of the West.

What a difference a month can make. New information on China’s manufacturing sector shows that it is still shrinking and shrinking at a rate which is not likely to get back into black numbers soon.

According to the AP, “The monthly purchasing managers index by brokerage CLSA Asia-Pacific Markets showed manufacturing shrank for an eighth month in March. Based on a survey of some 400 companies, the index fell to 44.8, down from February’s 45.1, on a scale where numbers below 50 show activity is shrinking.” Since manufacturing is the linchpin of export activity from the world’s most populous nation, it is hard to see how the country’s gross domestic product will keep a sharp upward trajectory.

China still believes that it can count on its large middle class to consume goods made in the country’s factories. But, most of that middle class are factory workers and they are losing jobs as the sector contracts. That means the consumer cycle is spiraling down.

The economy is China is getting worse than expected, much worse.

Douglas A. McIntyre