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The China Slowdown

Posted by: : Shayne HeffernanPosted on: December 14, 2014 The China Slowdown

The China Slowdown

November IP 7.2 percent year-on-year (forecast +7.5 percent, previous month +7.7 percent)

January to November fixed asset investment (FAI) 15.8 pct year-on-year (forecast +15.8 percent, previous period +15.9 percent)

November retail sales 11.7 percent year-on-year (forecast +11.5 percent, previous month +11.5 percent)

November power output up 0.6 percent year-on-year, third deceleration in a row

January to November property investment 11.9 percent year-on-year (January to October 12.4 percent)

– The government’s economic growth target of around 7.5 percent for 2014 looks increasingly at risk as a cooling housing market and slowing investment weigh on other sectors, though some officials have indicated that Beijing may tolerate slightly lower growth as long as the job market continues to hold up.

– China’s monetary policy will not be too tight or too loose next year as authorities try to sustain a reasonable pace of growth in the economy, which faces considerable headwinds, state media cited the government as saying on Thursday.

The economy faces relatively big downward pressure in 2015, the Xinhua news agency cited the government as saying after its annual Central Economic Work Conference, where authorities chart the growth blue-print for the following year.

– Policymakers have rolled out a series of measures since spring to bolster growth, targeted at the more vulnerable areas of the economy, but momentum has continued to slow.

– After months of insisting major stimulus was not needed, China’s central bank unexpectedly cut interest rates on Nov. 21 to shore up growth and ease the burden on debt-laden companies. Analysts see further policy easing in coming months to shore up activity.

China’s economy showed further signs of weakness in November, with factory output growth slowing more than expected and growth in investment near a 13-year low, Arab News reported.

China’s economic growth had already weakened to 7.3 percent in the third quarter, so November’s soft factory and investment figures suggest full-year growth will miss Beijing’s 7.5 percent target.

The figures put more pressure on policymakers to unveil fresh stimulus measures. However, in a sign that banks were already responding to instructions to reflate the economy, new lending jumped 56 percent last month.

“The data bodes ill for GDP growth in the fourth quarter, which is bound to slow further,” senior economist at Credit Agricole CIB in Hong Kong said in a statement.

Since initiating market reforms in 1978, China has shifted from a centrally planned to a market based economy and experienced rapid economic and social development. GDP growth averaging about 10 percent a year has lifted more than 500 million people out of poverty. All Millennium Development Goals have been reached or are within reach.

With a population of 1.3 billion, China recently became the second largest economy and is increasingly playing an important and influential role in the global economy.

Yet China remains a developing country (its per capita income is still a fraction of that in advanced countries)and its market reforms are incomplete. Official data shows that about 98.99 million people still lived below the national poverty line of RMB 2,300 per year at the end of 2012. With the second largest number of poor in the world after India, poverty reduction remains a fundamental challenge.

Rapid economic ascendance has brought on many challenges as well, including high inequality; rapid urbanization; challenges to environmental sustainability; and external imbalances. China also faces demographic pressures related to an aging population and the internal migration of labor.

Significant policy adjustments are required in order for China’s growth to be sustainable. Experience shows that transitioning from middle-income to high-income status can be more difficult than moving up from low to middle income.

China’s 12th Five-Year Plan (2011-2015) forcefully addresses these issues. It highlights the development of services and measures to address environmental and social imbalances, setting targets to reduce pollution, to increase energy efficiency, to improve access to education and healthcare, and to expand social protection. Its annual growth target of 7 percent signals the intention to focus on quality of life, rather than pace of growth.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

Trade FX, Equities and Options with the World's Leading Platform , call our trade desk 631 482 0376, or contact us to get started.

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