We’ve been publishing full pages about the economic troubles in the US of late and that, especially since the failure of the bailout plan early last week, has been the subject of just about every cocktail conversation I’ve had.
Everybody has an idea about how this is going to play out. About whether and how New Zealand will be affected and, as a subtext, how it will affect the US presidential race.
What’s going on in the US right now is vitally important to us, but the noise is perhaps diverting attention from another challenged economy that really could see the world thrown into recession: China.
The boom over the last few years was built on China exporting all sorts of consumer and technology goods and, in return, providing its customers with credit to buy those goods. The US effectively fuelled its boom with Chinese credit.
But with consumer spending drying up globally, what will happen to China’s impressive economic growth? What will happen to its burgeoning milk-fed middle classes?
For New Zealand, as for any country in the region, that is a vital concern, one somewhat exacerbated by Fonterra’s recent Chinese troubles.
Despite appearing to open up to the world in recent times, China remains opaque and mysterious. It’s hard to get a real handle on what’s happening there. A check on Google news last week using the keyword “China” showed numerous articles about the milk scandal, about the space walk and about tennis player Li Na beating Serena Williams. There was also some stuff about the Olympics and border negotiations with India.
When you added “economy” to the search, things got more interesting. The Financial Times reported China’s economy is showing signs of weakening. The official stats remain strong, but other indicators show weakening demand for iron ore and oil. Canada’s Financial Post reports slowing car sales and airline traffic. Airfreight traffic fell 6.8% year-on-year.
The paper quoted Todd Lee, an analyst at US firm Global Insight, saying the Chinese economy is “definitely facing a slowdown” and that there has been wealth destruction in the stock and real estate markets.
“You can’t count on China to be the engine of growth to help lead the global economy out of the current slowdown,” he said.
The Melbourne Age reports construction in China is slowing. The falling US dollar is also hurting China and there is some talk that China had a significant stake in US sub-prime securities as well.
Officially, China is expecting growth to slow from over 11% to 9%. If those figures are accurate, that’s still massive economic growth. It also eased monetary policy last month, moving from fighting inflation to stimulation.
Some have argued, convincingly I think, that even in the good times China’s high growth rates were unsustainable. We can only hope our region’s giant is robust enough to ride through the troubles assailing its biggest customer.