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China: On track for a (not so?) soft landing

China: On track for a (not so?) soft landing

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Published by: Deloitte University Press on Aug 13, 2013
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09/09/2013

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 Asia Pacifc Economic Outlook — September 2012 4
China’s economy continues to generatedisappointing economic news, but the sot landingscenario remains likely given the eorts by thegovernment to oset weak external demand.
Themain problem, o course, is the situation in Europe. Thegovernment reported that, in July, exports were up only1 percent rom a year earlier while imports were up 4.7percent. The weakness in exports reected the problemsin the global economy, but mainly in Europe. Exportsto Europe were down 16.1 percent, while exports tothe United States rose a very modest 0.6 percent.The European situation is so worrisome that it has elicitedcomments rom China’s leadership. In a meeting inBeijing with Germany’s Chancellor Angela Merkel, China’sPremier Wen Jiabao called or the peripheral countrieso Europe to do more to reorm. He said, “The mainworries are twoold: frst is whether Greece will leavethe Eurozone. The second is whether Italy and Spain willtake comprehensive rescue measures. Resolving thesetwo problems rests with whether Greece, Spain, Italy,and other countries have the determination or reorm.”Premier Wen also commented on what China can do. Hesaid, “China is willing, on condition o ully evaluatingthe risks, to continue to invest in the Eurozone sovereigndebt market.” China is clearly worried about Europe’sprospects. The European Union was China’s largestexport market until recently, but as exports to Europeslowed, the United States became the largest market orChina. The speed o recovery in China will depend, inpart, on what happens in Europe. It is not clear, however,that Chinese purchases o Eurozone debt will makemuch o a dierence or Europe except to boost thevalue o the euro—something Europe doesn’t need.The export problem has aected the health o China’sindustrial economy. A preliminary purchasing manager’sindex or Chinese manuacturing (published by HSBC/ Markit) ell rom 49.3 in July to 47.8 in August. Thiswas the weakest reading since November and the tenthconsecutive month that the index was below 50.0,indicating acceleration in the decline o manuacturingactivity. This index was consistent with other indicators thatsuggest worsening perormance. Export growth has stalled,and oreign direct investment is down. In addition, theChinese government reported that industrial productionwas up 9.2 percent in July rom a year earlier, and retailsales were up 13.1 percent rom a year earlier. Both fgureswere considerably weaker than market expectations.
China

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