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As of now, Chinese economy is showing no signs of recovery as pose by today's economic release.
Policymakers have targeted growth rate of 7% this year, which as of now doesn't look to be attainable. China grew exact 7% in first quarter and underlying data points at further slowdown.
- China's retail sales grew about 10% in April from a year ago. Slowdown in retail sales continue to point at cooling down of domestic demand.
- China's industrial production grew at 5.9% in April, up from March's 5.6%, however below expected 6% by economists. Industry remains heart center of Chinese economic engine and slowdown in the sector pose challenge for China's growth and strong export sector.
- Urban investment which has been one of the key fuel for Chinese growth slowed further in April to 12% from prior 13.5% on yearly basis.
However China's economic slowdown should be seen in context. The numbers are still an envy of developed nation where growth is meagre. US and UK growing about 2-2.5% and Euro zone still struggling to pose any decent economic recovery.
- This slowdown was required for Chinese economy. China needs to move into consumption and export balanced growth from current investment and export fuelled growth. Government is pursuing the required reform to move the economy in to such path.
- Current growth engine has led to excessive leverage and domestic debt in China, which if not check would have pose longer term risk to the economy.
How Government might manage slowdown -
- Government is already managing China's growth engine and it can be said it has somewhat avoided full scale hard landing of the economy.
- China would manage current slowdown by three distinct ways.
- Cutting down the habit of excessive debt intake and limit on borrowing abilities of regional governments/ municipalities.
- Peoples bank of China would keep monetary policy loose and refinancing cost lower.
- Chinese government at some stage would provide fiscal stimulus targeting various sectors of the economy.
