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China growth is reassuring but no game changer

First Published Jul 16 2014 10:22AM      Last Updated Jul 16 2014 10:22 am

A pickup in China’s growth has fortified confidence the world’s second-biggest economy is stabilizing as the past decade’s explosive growth decelerates to the 7 percent range.

China’s economic transformation since the 1980s has relied heavily on industrial investment and exports but those engines have run out of momentum. Chinese export manufacturers are surrendering some of their low-cost advantage as workers demand higher wages. Industrial growth has been so intense that many industries now have too many factories and suffer diminishing returns on every dollar of new investment. The cost to the environment and public health has been high.

Now, the government wants Chinese to save less and spend more to make the country’s own consumers a more important driver of growth.



China’s economy expanded 7.5 percent in the April-June quarter after growing 7.4 percent in the first quarter. Some 7.4 million new jobs were created in China in the first half of the year, a boost for country’s authoritarian rulers who fear politically destabilizing job losses.

The second quarter figure is positive but isn’t a game changer for Asia or the global economy. China has overtaken Europe and the U.S. to become the biggest market for numerous Asian nations so they must also adjust to its slower growth rates while dealing with sluggish recoveries in the West. Some of the challenges in Asia are outlined here.

— JAPAN

Long a manufacturing and technological powerhouse, Japanese pride was injured when China leaped ahead to become the world’s second-biggest economy. Japan remains far more affluent than China but its political and business elites are plagued by a sense of insecurity as population decline generates a powerful backdraft against efforts to inject vigor into the economy.

Cue Shinzo Abe, Japan’s energetic prime minister, who has pushed through a lavish expansion of the money supply to counter the deflation, or falling prices, that has had a dissipating effect on the economy for two decades.

In the very short-term, Japan’s economy is weathering the impact of an increase in sales tax that was needed to help repair tattered government finances. The economy likely contracted in April-June after surging at a 6.7 percent annualized pace in the first quarter when spending, to beat the tax increase, rose sharply.

The longer-term outlook turns on an economic policy overhaul needed to boost Japan’s waning competitiveness and cope with its declining and aging population. "We are looking for ways to change the Japanese economy," says economy minister Akira Amari.

— INDIA

A new government is boldly promising to lift India’s economic game and if it delivers, India could within a few years outshine China as the region’s fastest-growing economy. Right now, though, the Indian economy is close to bedridden.

A tough global economic climate was part of India’s problem. But erratic government policymaking that chilled new investment by foreign and local businesses was also a significant culprit and added to the drag on growth from India’s Soviet-like bureaucracy.

Just three years ago, officials were brash enough to insist India would grow at rates above 10 percent. They had some justification because growth rates were already approaching those levels but then they plunged to settle below 5 percent.

While developed nations would be thrilled with growth of even 3 percent, poverty-ridden India needs very rapid growth to provide jobs and improve living standards for the estimated two-thirds of its 1.2 billion people who live on under $2 per day. The IMF forecasts growth of 5.4 percent this year and 6.4 percent next year.

One catch for the rest of Asia is that India’s heavy reliance on imported oil means many of the benefits of faster growth would flow to the Middle East and other oil producers. Stronger Indian demand for crude could also jack up prices, troubling neighbors also reliant on imported energy.

Partly for cultural reasons, Indians are prodigious importers of gold so economic recovery might boost gold imports but at the expense of a greater lift in imports of manufactured goods from its Asian neighbors.

— SOUTH KOREA

 

 

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