What China Needs to Do to Pump up its Economy
China continues to show evidence of economic slowing with stalled consumer spending, lower imports, and stagnant exports in August. Industrial Production is also weak and suggests weak foreign demand and domestic consumer spending.
At the heart of China’s slowing is the spending crunch involving Europe and the U.S., which is impacting the Chinese economy and threatening a possible “hard landing.”
The superlative growth of China’s GDP growth over the last decade has largely been fueled by export demand for cheaper Chinese-made goods. The country built thousands of manufacturing plants and added significant capacity to handle the substantial influx of foreign business.
While this strategy works when global economies are strong, the problem arises when export demand declines, as we are seeing now in China. There are many plants operating well below capacity, and it could get worse if the financial crisis in Europe doesn’t improve soon. For instance, the country’s aluminum-producing plants are cutting production. We are seeing the same in other sectors across China as the country’s economy slows.