China Economy May Slow Next Year

Oct. 24 (Bloomberg) -- By Bloomberg News

Highlights

• Stephen Roach, chairman of Morgan Stanley Asia: China may face an economic slowdown in the middle of next year because the nation’s growth model is unsustainable.
• Economic growth in China: accelerated to 8.9 percent last quarter, fueled by government stimulus spending and more than $1 trillion of new bank lending. “China’s growth model is much more about supply than demand,” Roach said. “It’s not a sustainable model for China. It’s not a sustainable model for any nation.”
• Stimulus Plan: The government’s $586 billion stimulus plan unveiled in November last year spans earthquake reconstruction work, roads, railways and low-cost housing. Chinese banks doled out a record 8.67 trillion yuan ($1.27 trillion) of new loans in the first nine months, more than double the same period a year earlier.
  
• Stimulus Growth: China grew 6.1 percent in the first quarter of 2009, the slowest pace of expansion in almost a decade, as shipments abroad fell 17.1 percent during the period. Growth picked up to 7.9 percent in the second quarter as exports slid 21.4 percent.
• Balancing Need: In the next few months, the government will focus on balancing the need to maintain stable and relatively fast growth with the need to adjust the structure of China’s economy and better manager inflationary expectations, the State Council, China’s cabinet, said Oct. 21. The nation also faces increasing difficulty in managing liquidity and the structure of loans is “not rational,” the State Council said.
  

Comments:

Newton observed that when an apple disconnected from a tree it fell. He call that gravity. In a well organized centralized government like China, which is a major world economic player, they claim the apple rises. Why am I skeptical. Maybe because;

Banking: My banking friends and associates quiver when they think of Chinese accounting and reconciling asset value to book value.

Gasoline Consumption: I am told, (sorry I don't have the exact numbers) new vehicle purchase are up and business is booming domestically; yet; year or year gasoline consumption is down.

Electrical Output: Ditto for electrical output for the country. Business is booming domestically but year over year electrical consumption is down.

After decades of a worldwide economic party which was driven by a constant deterioration of credit standards and the creation of derivatives that required a religious quality to believe we are all experiencing the hangover. Sorry folks, quick fixes and the solutions will not occur until new leadership faces and policies continue to emerge and reach a critical mass. Half way through 2010 we may look back at 2009 as having been a very prosperous time for the world economy.

Best,

James Monachino