World looks to China for economic leadership

15 July 2013

With the US economy struggling to grow and help lead the world out of global recession, investors and analysts are increasingly looking to China but even there many believe the desperately needed growth will not come.

Growth will not be driven by Europe’s poorly performing economies and the raft of policies introduced in Japan, known as ‘Abenomics after the new prime minister, have yet to make themselves felt outside of the country.

This leaves everyone looking to China, a country that has posted impressive double-digit GDP growth figures for two decades but is now seeing those figures tumble.

In 2010 GDP was 10.4%, but it fell to 9.3% the year after and again to 7.8% in 2012.

When first quarter of 2013 GDP figure of 7.7% were announced, the dip provoked alarm on stock markets around the world.

Poor demand

One analyst with growing concern over the direction of the Chinese economy is Ken Davies, president of investment consultancy Growing Capacity Inc., who said: “The indicators for China point to growth continuing to slow down.”

In addition, demand for Chinese products is in decline with an index revealing there is particularly poor demand from OECD countries.

Mr Davies said: “China needs its GDP to grow by at least 8.5% every year so college and school leavers will find jobs.”

He says one issue is that China’s rulers are keen for ‘social stability’ and by that they mean political stability, and that they can’t afford for living standards to drop.

However, the Chinese face limited options when it comes to boosting their economy after pumping in £389 billion during 2008 and 2009 in a massive fiscal stimulus programme.

Domestic problems

The money then led to more overheating and overinvestment and increased bad debts with the government now desperately trying to avoid their property bubble bursting.

In a bid to bring economic stability, the Chinese authorities are trying to balance their exporting prowess with developing domestic demand.

China also faces issues with a rapidly aging population and the number of workers will soon hit a plateau which will make further economic growth difficult.

Mr Davies says: “Not only does China need to rebalance its economy; it also needs to protect the environment and increase its recycling rates.

“Most of these options have been offered as policies by the OECD but these will only happen if the benefits and an effective way of implementing them can be seen by China’s leaders.

“If they do act then China’s, and the world’s, economic future looks brighter but if they don’t the economy will stagnate and China will slip towards the doldrums which means the prospects for the world’s economy are solemn.”

Source: iExpats

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