The inevitable is happening. In a globalized economy, crises are also globalized.
And now the economic dragon of the East is beginning to tremble.
First, from Keith Bradsher of the New York Times:
A nationwide real estate downturn, stalling exports and declining consumer confidence have produced what a Chinese cabinet adviser, quoted on the official government Web site on Thursday, characterized as a “sharp slowdown in the economy.”
Though the Chinese economy continues to expand, construction workers are losing jobs in droves and retail sales grew last month at the slowest pace in more than three years. Investments in fixed assets have increased more slowly this year than in any year since 2001.
The most striking feature of the slowdown is that it extends beyond the coastal provinces, which depend on exports and are closely linked to the global economy, to the country’s far more insular interior, including cities like Xi’an here in northwestern China.
China’s unexpected economic difficulties are starting to unnerve investors in world markets, especially commodity markets, as China is the world’s largest consumer of most raw materials and the second-largest consumer of oil.
And the word from China
Two stories from Xinhua, the official Chinese news agency, confirm the downturn.
First, a report on declining manufacturing:
China’s manufacturing activity showed a modest drop in May, as new orders continued to contract in the month, according to a reading of the manufacturing purchasing managers index (PMI) released by HSBC on Thursday.
The flash China manufacturing PMI eased to a two-month low of 48.7 in May, down from 49.3 in April, but the output sub-index bounced above the boom-or-bust level to reach a seven-month high of 50.5, compared with 49.3 in April, according to HSBC.
A reading above 50 suggests expansion, while a reading below 50 indicates contraction.
“Manufacturing activities softened again in May, reflecting the deteriorating export situation. This calls for more aggressive policy easing as inflation continues to slow,” Qu Hongbin, chief economist at HSBC China and co-head of Asian Economic Research at HSBC, wrote in a research note on the PMI reading.
But it’s the second story that really shows the extent of official anxiety:
China’s Cabinet on Wednesday sought to shore up economic weakness in the country, pledging more attention to “stabilizing economic growth” amid fears that the world’s second-largest economy may slow further in coming months.
Authorities should give more priority to stabilizing growth and actively boost domestic demand as the economy faces “increasing downward pressure,” the State Council said Wednesday.
The government should “place stabilizing growth in a more important position and carry out preemptive policy adjustments and fine-tuning more forcefully according to the changing situation,” according to a statement issued after an executive meeting of the State Council presided over by Premier Wen Jiabao.
“Some prominent contradictions and problems still exist in the country’s economic development. In particular, the pressure for a downward economic movement is increasing,” the statement said.
Considering the source, we’d have to call that a fairly die warning.
With China itself teetering, a new round of the crisis is at hand.
Hang on to your hats.