Thursday, December 01, 2011

China is catching a cold

And that could be bad news for prospects for a global economic recovery.

The Associated Press reports that the Chinese government is attempting to jump start an economy that for the past two years it had been attempting to slow down. In other words, fears of recession have replaced fears of inflation. 
The European debt crisis and feeble U.S. recovery have weakened demand in China’s biggest export market, while at home efforts to curb inflation by cooling the property market are hurting a wide range of industries heavily dependent on housing and other construction.
The worsening conditions are no surprise to Chen Xiaoyan, a saleswoman at the Cangnan Qianku Qingfeng Pet Supplies Craft Factory in Wenzhou, a manufacturing base that has been hit especially hard by tight credit policies, leaving many factories short of operating cash.
“It was hard enough to do business last year. This year is the hardest,” said Chen. “Our profit was 30 percent lower last year and it will be down another 10 percent this year,” she said. Materials costs have come down in recent months, but labor costs have not, said Chen.
Worries over erring on the side of too fast growth are being overshadowed by greater alarm over a deeper slump as conditions worsen overseas.
“They’re stuck,” Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing said of China’s policymakers.
Bloomberg adds that at least one Chinese official believes that Europe's financial crisis could spark global economic problems exceeding what took place in 2008.

If he's correct, we're all about to be sick.

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