No hard landing for China's economy
- By John Ross
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E-mail China.org.cn, September 19, 2012
China's economic growth in 2012 has been at its slowest pace in three years. GDP growth declined to 7.8 percent during the first half of this year. August's data showed industrial growth falling to 8.9 percent and the official Purchasing Managers Index, an indicator of manufacturing growth, declining to 49.2. This has led to predictions that China will suffer a "hard landing". This prophecy is regularly made , yet it is invariably inaccurate. Thus, it should be explained why it won't occur this time either.
China's economy decelerated in 2012 for two reasons: The first was the world economic slowdown–which does mean China's growth this year will be slower than years before. But as all major economies decelerate, China will maintain its lead amid slower global growth. The second reason was that normally sure footed government economic policy made errors which are now being corrected. In the overall context of China's rapid economic growth a few months of sub-par performance is neither here nor there, as no government can avoid all mistakes. As these mistakes are ameliorated, China's economy should accelerate towards the end of 2012. Disentangling these factors clarifies China's economic trends.
In contrast, the EU has entered a new recession, with GDP still 2.1 percent below 2008 levels. Japan's latest GDP data shows tortoise-like 0.8 percent annualized growth with output still 1.9 percent below its peak. US GDP growth decelerated from 4.1 percent at the end of 2011 to 1.7 percent in the last quarter.
Equally serious are the side effects of successive "quantitative easing" (QE) policies adopted by the US to attempt to accelerate its economy. Large scale printing of money did not significantly increase US growth, as the data makes clear, but rather has spiked global inflation. During QE1, running until March 2010, international commodity prices rose by 36 percent. During QE2, ending in June 2011, there was a further 10 percent rise. To control the resulting inflation major developing countries had to tighten economic policies. As the majority of world growth in the last period was created by BRIC countries (Brazil, Russia, India, China) this slowed the global economy.
The Federal Reserve's QE3, launched last week, will have a similar effect. The prospect of QE3, and the US drought, has increased world commodity prices by 20 percent since June. Consequently, to avoid destabilizing inflation levels, China and other developing economies must be moderate in launching stimulus policies. This lowers world growth, dampening China’s exports. Nevertheless, as all economies are subject to the same international pressures, China will maintain its lead – it is currently expanding three times faster than any major advanced economy and several percentage points faster than large developing economies.
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