previous month data regarding unemployment and other key
economic metrics. This leads to more speculation than actual
facts about the U.S. economic recovery.
In August, there was a release of data that indicated that
home resale’s rose to their highest rate in more than two years
and groundbreaking on new homes also climbed yielding hopeful signs that a budding housing market recovery is gaining a bit
of traction. Of course, the question of sustainability of such efforts has to be addressed.
At the moment we are entering a period of the year in the
U.S. in which home sales—resale or new—are not normally robust. Other key economic metrics such as median Income indicate that on average U.S. households have lost about $4,000
compared to what they had at the close of 2008. Unemployment rate remains high and is projected to continue well into
next year at current levels. In addition, there isn’t a real game
plan in place to reduce the staggering U.S. national debt now
standing at over $16 trillion.
The ongoing battle between opposing political parties will
most likely continue following the upcoming election regardless
of which side is elected to the position of President. This means
that little if anything will be done to reduce the debt in the short-term. Meanwhile, the EU is embroiled in internal conflict with
member states, in particular, Spain. The bottom line here is that
if China’s economic future is truly dependent on a more stable,
healthy and robust U.S. and EU economy that may not happen
in the short-term.
Most observers feel that China has “bottomed out” in its economic slowdown and is poised to take advantage of growth opportunities around the globe. Their game plan is to overtake the
U.S. GDP output before the end of this decade. How they will do
that without a strong and vibrant export market remains to be
seen. However, it is obvious that China is in a much better financial/economic position as compared to the U.S. or the EU.
Still, it is also clear that China’s future is very much tied in with
the recovery of both the U.S. and EU economies.
My answer to the question, “Is the Great China Growth Story
falling apart?” is a somewhat weak “MAYBE”. Remember, real
growth for China has slowed as China is still very much dependent on its traditional export market, which in turn is dependent on the financial health of their international trading
partners. Many of those partners have also invested heavily inside China over the past decades and today they too are experiencing a genuine slowdown in sales, both domestic and
international, as product inventories build up in their China-based manufacturing facilities. Some have already had to lay off
employees with more drastic actions to come.
It’s quite likely that China will continue its recent policy of al-
lowing the Yuan to devalue in order to stabilize or grow its ex-
port market. China is also committed to pursuing other options
to become less dependent on imports of crude oil and other crit-
ical materials. More effort is planned to shore up the fledging
middle class and developing a domestic service industry. China
leadership maintains that although a slowdown has happened it
is simply a short-term reaction to external factors, which they
feel will be resolved in a reasonable time period. For certain
China is still committed to overtaking the U.S. economically. As
always, the question is, “How and when?”
In the meantime, China’s leaders President Hu Jintao and Pre-
mier Wen Jiabao are embroiled in a critical two-prong activity—
coping with the worst economic slowdown in over three years
and preparing for a change in the country’s leadership. Both Hu
and Wen are due to be replaced in a communist party conclave
meeting to be held sometime in October or perhaps November.
It is widely speculated in China that the major reason for being
so difficult to set an exact date for such an important meeting is
that the high level party members have not yet come to an agree-
ment of the new core members of the party management.
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