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Home / Business / Economy

China's slowdown welcome evidence controls having effect

Independent
2 Jun, 2010 04:00 PM2 mins to read

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Economic slowdown is a curse to most Western countries, but not to China.

The slowing of its economy will be welcomed as evidence that official efforts to control inflation and restrain a potential bubble economy may now be succeeding.

A crackdown on property speculation is having at least a superficial
impact on real estate values, up in some cities by 36 per cent in a year.

Rapid wage growth and an upsurge in workers' militancy - symbolised by the strike at Honda - are also signs of an economy operating at full capacity.

Manufacturing, which has dominated China's export-led growth for a decade, recorded its 15th straight month of expansionary optimism, according to the latest poll.

But the Purchasing Managers' Index fell from 55.7 in April to 53.9 last month, somewhat below expectations.

That is the lowest level in a year, although still above the "break-even" 50 mark, suggesting sustained expansion. Worries about the strength of the global economy have also damaged confidence, which depends heavily on US and European markets.

The sovereign debt crisis in the eurozone has had a particularly baleful effect; the Shanghai stock market fell by almost 19 per cent in May.

Underlying fears about the Chinese economy persist. Prime among these are the continuing strains in the relationship with the United States.

Although China's record-breaking trade surplus has subsided, US officials such as Treasury Secretary Tim Geithner make little secret of their desire to see China revalue its currency.

But tightening monetary policy - under way in a modest way in Beijing - would have the effect of further contracting domestic demand.

To balance that threat, the Chinese Premier, Wen Jiabao, said yesterday his Government would maintain the fiscal stimulus to the economy to boost domestic consumption, appeasing Beijing's many international critics.

- INDEPENDENT

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