China Growth Slows, Drags Down Asia

Whether it is purchasing managers index (PMI) statistics or imports and exports, more and more signs point to a tapering of China’s growth. Even the central government has moved its gross domestic product (GDP) target growth for this year to 7%. It is no wonder that the World Bank has forecast a drop off in China’s expansion, and the slowdown will affect the past surge in Asia.

According to the World Bank:

Economic growth will ease slightly in developing countries in East Asia and Pacific this year, even as the region benefits from lower oil prices and a continued economic recovery in developed economies, according to the East Asia Pacific Economic Update released today by the World Bank.

The developing economies of East Asia are projected to grow by 6.7 percent in 2015 and 2016, slightly down from 6.9 percent in 2014. China’s growth is expected to moderate to around 7 percent in the next two years compared with 7.4 percent in 2014. Growth in the rest of developing East Asia is expected to rise by half a percentage point, to 5.1 percent this year, largely driven by domestic demand — thanks to upbeat consumer sentiment and falling oil prices — in the large Southeast Asian economies. Several smaller economies, especially commodity exporters such as Mongolia, will see lower growth.

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Among the anxieties about the trend is that the earning improvements of China’s middle class, which has driven much of its consumer leaning economy, will collapse. This would undermine China’s metaphoric transformation from an economy that is expanding because of consumer growth, and not as much as by the industrial infrastructure put in place by the central government.

Not part of the World Bank analysis of China’s problems is the terrible toll air and water pollution have started to take on factory production and activity in the nation’s largest cities. This will expand, and China has done nothing to stop it.

The World Bank may be wrong. Expansion in China may fall further than it expects.

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