Economist Chovanec warns China’s economy may be contracting
Friday, 4 May 2012.
Falling investment could reduce GDP growth to 4 percent this year says Beijing-based professor (video)
Concerns are rising that the Chinese economy is experiencing a sharp slowdown, with major implications for the global capitalist economy. In a much-discussed Bloomberg News interview, Professor Patrick Chovanec, who is an associate professor at Tsinghua University’s School of Economics and Management in Beijing, said official statistics for inflation and industrial production could not be trusted. The government’s claim that consumer price inflation (CPI) has fallen to 3.4 percent was contradicted by “the reality on the ground,” said Chovanec.
He said the government’s GDP claims also showed “an increasing disconnect”. Last quarter’s GDP growth was 8.1 percent according to official figures.
“Most of the people who I talk to see a flat year,” said Chovanec, stunning his interviewer with the view that the economy “is perhaps experiencing a contraction right now.”
There is a sharp slowdown in China’s housing market, which has been a prime motor of economic growth in recent years, powering demand for steel, cement, household goods, motor vehicles and other sectors that experienced rapid expansion. The housing downturn, with government curbs designed to prevent rampant speculation, has resulted in soaring indebtedness for real estate developers and in recent weeks also a number of bankruptcies in the sector, primarily in Guangdong and Zhejiang provinces. The corresponding slump in new investment in the property sector will impact economic growth as a whole, due to the economy’s high reliance on investment (accounting for around 50 percent of GDP in 2011) and the property sector’s large share of total investment (more than 25 percent).
According to Chovanec, China “could lose as much as 5 percent off GDP growth” if investment did not increase, which would translate into a so-called hard landing for the economy with growth slowing to around 4 percent, he said. He also questioned the strength of the banking system, saying many people believed there were unreported losses in the state-controlled banks.
Watch the Bloomberg interview here.
Concerns are rising that the Chinese economy is experiencing a sharp slowdown, with major implications for the global capitalist economy. In a much-discussed Bloomberg News interview, Professor Patrick Chovanec, who is an associate professor at Tsinghua University’s School of Economics and Management in Beijing, said official statistics for inflation and industrial production could not be trusted. The government’s claim that consumer price inflation (CPI) has fallen to 3.4 percent was contradicted by “the reality on the ground,” said Chovanec.
He said the government’s GDP claims also showed “an increasing disconnect”. Last quarter’s GDP growth was 8.1 percent according to official figures.
“Most of the people who I talk to see a flat year,” said Chovanec, stunning his interviewer with the view that the economy “is perhaps experiencing a contraction right now.”
There is a sharp slowdown in China’s housing market, which has been a prime motor of economic growth in recent years, powering demand for steel, cement, household goods, motor vehicles and other sectors that experienced rapid expansion. The housing downturn, with government curbs designed to prevent rampant speculation, has resulted in soaring indebtedness for real estate developers and in recent weeks also a number of bankruptcies in the sector, primarily in Guangdong and Zhejiang provinces. The corresponding slump in new investment in the property sector will impact economic growth as a whole, due to the economy’s high reliance on investment (accounting for around 50 percent of GDP in 2011) and the property sector’s large share of total investment (more than 25 percent).
According to Chovanec, China “could lose as much as 5 percent off GDP growth” if investment did not increase, which would translate into a so-called hard landing for the economy with growth slowing to around 4 percent, he said. He also questioned the strength of the banking system, saying many people believed there were unreported losses in the state-controlled banks.
Watch the Bloomberg interview here.
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