China’s era of easy growth gone?
Hong Kong, China (CNN) – For three decades, China has had a breath-taking annual growth rate of 10 percent, vaulting most of the developed world to become the world’s second largest economy behind the United States.
But there are signs that China is entering a new era of growing pains as its economy matures.
November inflation was a surprising 5.1 percent, led by rising food prices, but analysts have noted that prices are rising for property and clothing – stoking fears of a wider inflation conflagration.
“We’ve had an easy ride in China for awhile of creating massive growth without worrying too much about inflation,” said Kirby Daley, a senior strategist at Newedge Group.
“However, in 2011, we’re getting to sort of where the rubber meets the road. The period of hyper-growth without inflation is probably coming to an end because they’re starting to get themselves into a box,” Daley said. “In China, they’ve mainly grown through investment, so if they really want to stop inflation, they have to stop that flow of investment. That’s going to hurt the economy.”
Many China watchers expect that the government will drive up interest rates to keep inflation at bay. So far, no move has been forthcoming, which cheered Asian investors and caused Chinese stocks to continue to rally.
Still, the government raised the capital requirements – the amount of cash Chinese banks need to have on hand – last Friday, the third time in a month.
“It was widely expected they would take this opportunity to also raise interest rates, which they didn’t do,” Daley said. “And that is somewhat of a sign that they are going to try to deflect over-tightening (and) shocking the markets.”
But eventually Beijing will need to act “probably in the first quarter of next year, and if they don’t begin to ease it in, then they’ll have to act more forcefully – and that’s what investors should be concerned with, a bigger shock later,” Daley said.
In the past, inflation has led to social instability and protests – something Beijing goes to great lengths to avoid. Lurking behind all this is the specter of a bubble pop in the Chinese property market, and a larger question of what awaits Chinese economy – a soft economic landing, or a hard one?
Word of the day
Origin: French spectre, from Latin spectrum appearance, specter, from specere to look, look at — more at spy
First Known Use: 1605
1: a visible disembodied spirit : ghost
2: something that haunts or perturbs the mind: phantasm <the specter of hunger>
(at) Bay: n. the situation of a person or thing that is forced actively to oppose or to succumb to some adverse condition
Conflagrate: n. a war or conflict
Deflect: v. to turn aside especially from a straight course or fixed direction
Lurk: v. to constitute a latent threat
Rally: v. to arouse for action
Stoke: v. to increase the activity, intensity, or amount of
Vault: v. to do or achieve something as if by a leap
Idioms and Phrases
Growing pains: problems that arise in beginning or enlarging an enterprise, as in The company is undergoing growing pains but should be viable by next year. This expression, which dates from the late 1800s, originally referred to the joint and limb aches experienced by youngsters who are growing rapidly. By about 1900 it was being used figuratively.
Where the rubber meets the road: most important point for something, the moment of truth
On hand: in one’s possession; at one’s disposal
Love those Phrasal Verbs
Drive up: Make something increase
- The market uncertainty has driven up the prices on just about everything!