This post is based off of an article, “Understanding The
China Slowdown” by Dexter Roberts that I read in the June 4-June 10, 2012
edition of Bloomberg BusinessWeek. In
the article, Roberts describes China’s recent declines in growth. It’s obvious that China is very concerned
about their growth, given multiple announcement about maintaining growth by
their high ranking government officials.
China has stated that they will try to spur growth the following ways:
- Infrastructure projects
- Encouraging private investments
- Subsidizing energy-efficient consumer purchases
- Expanding airports into other provinces
China is also considering a $315 billion stimulus, but claim
they are careful not to overspend like they did 3 years ago. According to Credit Suisse, China will grow
less than 7% this quarter, even less if Greece decides to drop the Euro (see my
last blog post for my thoughts on Greece).
So what does all this mean for the U.S.? Is it a good or bad thing? Well, I’m sure there are both sides of the
coin, but I personally think it would hurt the U.S. more than help.
Why?
Well, China is the world’s biggest holder of foreign
reserves. Also, China’s slowdown in
growth will curb China’s demand for U.S. exports. Believe it or not, U.S. exports to China has
skyrocketed 542% from 2000-2011. Given
the U.S. current account deficit, any decrease in U.S. exports is a bad thing. Also, China could become more lenient in its
monetary policy and allow its currency to depreciate against the USD, which
would hurt the U.S. export market even further.
On the bright side, a Chinese conglomerate, Dalian Wanda
Group, recently bought the second largest movie theater chain in the U.S., AMC. Grab your popcorn, the future headlines
regarding the global economy is sure to keep you on the edge of your seat!
Sources:
Roberts, Dexter.
"Understanding The China Slowdown." Bloomberg Businessweek
4-10 June 2012: 8-9
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