Beginning To Think The Worst About China's Growth

The sound of China’s claims that its economy will grow at 8% or better this year are getting faint.

According to the FT, “The World Bank  lowered its forecast for China’s GDP growth this year to 6.5 per cent, down from 7.5 per cent it predicted at the end of November last year, following a huge drop in exports and shrinking private sector investment.”

Even that estimate may be too high.

China’s factory production and export figures appear to be too low to support rapid GDP growth. That would mean spending inside the country would have to be extraordinary. This may end up being the case as the central government puts $600 billion into the economy to offset the slowdown in the world’s GDP growth. While the move may help China’s growth, it is artificial and because of that it is probably not sustainable.

Once the $600 billion has been handed out, China may be left with only two options. The first is to spend another $600 billion. The second is to hope that business and consumer activity will pick up in the US, EU, and Japan, pushing up China’s export figures.

What would GDP growth in the world’s most populous nation be without a huge aid package? Probably far less than 6%

Douglas A. McIntyre