San Francisco Fed Economists Are Bullish On China Despite Third Quarter Growth Reported Weakest Since 2009

Thursday, October 18, 2012 06:39
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San Francisco Fed Economists Are Bullish On China Despite Third Quarter Growth Reported Weakest Since 2009

Tags: China | economy | world economy

China’s economic growth slowed as expected during the third quarter as gross domestic product (GDP) fell to 7.4% compared to third quarter 2011. Second quarter growth was down 7.6% and the third quarter report is the weakest since 2009.

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But two San Francisco Federal Reserve economists are bullish on the Chinese economy, primarily because it is so backward.
 
The majority of the country is still underdeveloped. They say China has an advantage because it has so much catching up to do with the developed world.
 
Growth in the more developed areas like Beijing and Shanghai may slow to 5.5% by 2020.
 
China’s poorer coastal regions are already experiencing better growth because of access to global shipping and export markets.
 
But the internal areas are poor. Wages are low. That makes those areas suitable for labor-intensive work. And it will be easier for these areas to register faster growth because they will be coming from such a low point.
 
Internal segments of China also have inferior infrastructures and are far removed from industrial networks. This could present a challenge to the economists’ theory.
 
Other analysts were divided on whether Beijing would act to boost economic growth, especially in light of the upcoming every-decade transition of power.
 
China’s leaders hope that strong rises in wages will boost domestic consumption and drive higher growth. But declining growth is already adversely affecting corporate profits.
 
And Beijing’s reluctance to act creates uncertainty about the government’s ability to manage the economy during a time of transition. Further, Beijing wants to take time to give previous easings time to work.
 
This lessens the likelihood that further easing will occur after the transition in leadership.

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