[Prelim] China’s Economic Growth Falls to Nearly Three-year Low

By JOE McDONALD | Associated Press – Fri, Apr 13, 2012

BEIJING (AP) — China’s economic growth fell to its lowest level in nearly three years in the first quarter but analysts said the economy should rebound in coming months.

Growth in the world’s second-biggest economy declined to a still-robust 8.1 percent in the three months ending in March, data showed Friday. That was down from the previous quarter’s 8.9 percent and the weakest rate since the second quarter of 2009.

China’s rapid growth has declined steadily since 2010 as a slump in global demand battered its exporters and Beijing tightened lending and investment curbs to cool an overheated economy and surging inflation.

An uncontrolled slump could have global repercussions, hurting demand for oil, industrial components and consumer goods at a time when U.S. and European growth are weak. It also might fuel political tensions in China as the ruling Communist Party prepares for a sensitive, once-a-decade handover of power to younger leaders.

“This quarter’s growth was pretty weak,” said IHS Global Insight analyst Xianfang Ren. “Starting from next quarter, growth should strengthen.”

The World Bank and International Monetary Fund expect 8.2 percent growth for China this year, below 2010′s explosive 10.4 percent expansion but far ahead of the low single-digit forecasts for the United States, Japan and Europe.

Other data showed Chinese factory activity, retail sales and exports accelerating over the course of the first quarter, though still weaker than last year.

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P E R S O N A L  R E A C T I O N 

We are all acquainted with the fact that what happens in China doesn’t only stays in China. Instead, it impacts the entire world. They are the largest exporter and second largest importer of goods after United States. As a major commodities source, a slower China would likely mean lower prices for oil, copper, iron ore and other raw materials, dampening the growth in many emerging markets. In other words, if China’s economic growth rate declines, everybody will feel it.

In my opinion, it is very difficult to tell what’s really going on in the Chinese economy. Data is sparse or unreliable. And China is in certain ways unique in economic terms. Valid precedents are hard to find. But then, the more I look at this issue, the more convinced I am that their current economic system right now is unsustainable. We know we can’t escape math in terms of economics. If the numbers don’t add up, it doesn’t matter much how big our economy might be or how fast it is growing or how heavy a role the state might play. And China has lots of numbers that just don’t add up. Their state of capitalism creates a big part of the bad math.

I suggest the need for them to shift already to a different growth strategy; one based less on investment or exports, and more on domestic consumption. They must operate on a more commercial basis to make sure investment goes where it is truly needed.

More importantly, I think the world should be more worried about the potential fallout from a China that doesn’t slow down than a China that does. Sure, reduced Chinese growth will hurt the global economy. But an unreformed China that refuses to change its economic model and promotes growth at all costs is a much bigger danger to world economic stability.