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China's economy suffers 'sharp slowdown'
'Clearly the economy is much, much weaker than most people thought until recently
By KEITH BRADSHER
updated 5/25/2012 4:23:24 AM ET
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XI’AN, China — A nationwide real estate downturn, stalling exports and declining consumer confidence have produced what a Chinese cabinet adviser, quoted on the official government Web site on Thursday, characterized as a “sharp slowdown in the economy.”
Though the Chinese economy continues to expand, construction workers are losing jobs in droves and retail sales grew last month at the slowest pace in more than three years. Investments in fixed assets have increased more slowly this year than in any year since 2001. ...华岳论坛 - "http://hua-yue.net"
The most striking feature of the slowdown is that it extends beyond the coastal provinces, which depend on exports and are closely linked to the global economy, to the country’s far more insular interior, including cities like Xi’an here in northwestern China.
China’s unexpected economic difficulties are starting to unnerve investors in world markets, especially commodity markets, as China is the world’s largest consumer of most raw materials and the second-largest consumer of oil.
A deepening slowdown would ripple across the world economy. Until now, China’s economy barreled ahead mostly unhindered as the main engine of global growth, even as Europe struggled with its government debt crisis and the United States limped along with a crippled housing market.
Cash squeeze
Government indexes show real estate prices are falling in more than half of the country’s top 70 urban markets, Xi’an among them. Standard & Poor’s Ratings Services and Moody’s each issued reports on Thursday warning that many of China’s real estate developers face a severe cash squeeze as apartment sales slow to a crawl. The developers still owe heavy interest payments on bank loans.
“Weak property developers in China are likely to face a test of their survival this year,” S.& P. said.
Storm clouds loom over global economy
China’s economy was 8.1 percent larger in the first quarter of this year than a year earlier, but virtually all of that growth took place last year. The economy barely grew in the first quarter compared with the fourth quarter of 2011, and the second quarter of this year is likely to show even less growth from the preceding quarter, said Diana Choyleva, a China economist in the Hong Kong office of Lombard Street Research.
The World Bank also warned on Wednesday of a slowdown.
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“Clearly the economy is much, much weaker than most people thought until recently,” Ms. Choyleva said. “They have a real mess on their hands.”
Rising wealth in China fails to buy more happiness
China is the world’s largest importer of a long list of commodities, like iron ore and copper. It has also been a big buyer of European factory equipment and luxury goods. The United States economy is much less exposed to a slowdown in the Chinese economy, with exports of goods to China representing less than 0.7 percent of American economic output last year.
Benefiting from heavy government spending on highways and other infrastructure and voracious demand for apartments as poor laborers arrived from the countryside, China’s inland cities had continued to expand even when the rest of the world’s economy fell into serious difficulty in late 2008 and early 2009. But now the economic troubles are evident here in Xi’an, an economic cornerstone of northwestern China that serves as one of the country’s largest transportation and distribution hubs and a manufacturing center for everything from bulldozers to aircraft components.
Sun Yufang, a wholesale dealer in Xi’an in ovens, ranges and water heaters, said that residents had nearly stopped outfitting new apartments or redecorating old ones.
Video: From May 11: The great China slowdown (on this page)
“We didn’t really feel the global financial crisis, but this year, we’ve really felt it — I don’t see a solution unless people start buying,” Ms. Sun said, sitting in a spacious shop with no customers in sight.
Premier Wen Jiabao expressed concern last weekend about the economy after an inspection tour to Wuhan in east-central China. He then led a cabinet meeting on Wednesday that produced the government’s strongest statement yet.
The government should “place stabilizing growth in a more important position and carry out pre-emptive policy adjustments and fine-tuning more forcefully according to the changing situation,” the cabinet statement said.
An explanatory statement from the official Xinhua news agency drafted on Wednesday and posted on the Chinese government’s Web site on Thursday cited Zhang Liqun, a senior economist advising the cabinet, as saying that, “the sharp slowdown in the economy has aroused attention from policy makers.”
More China coverage in our Behind The Wall blog
A preliminary reading of a monthly purchasing managers index showed that manufacturing had continued to weaken in May, with the index falling to 48.7 from 49.3 in April; a figure below 50 indicates a slowing sector.
Video: From May 11: How to play China's economy (on this page)
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The cabinet called for stimulating the economy through faster construction of railroads, schools, clinics and other infrastructure. With the Chinese economy still heavily dependent on investment spending, some economists are optimistic that China can quickly reignite growth.
“When you’ve got state banks lending to state enterprises to implement the state’s five-year plan, you don’t have a lot of downside to investment,” said Paul Gruenwald, a former International Monetary Fund official in Hong Kong who is now the chief Asia economist at ANZ, one of Australia’s biggest banks.
'Never seen it as bad'
China has the financial resources to expand government spending sharply. China has a low ratio of debt to economic output, even when sizable local government debts are added to the national debt. Chinese banks have among the world’s lowest rates of loans to deposits, although some banking analysts have questioned whether many loans by state-owned banks to politically influential borrowers will be repaid.