This latest economic news is filled with headlines about the "surprising" slowdown in Chinese economic growth. In the latest quarterly report, we are told that China grew at a rate of 7.7% over the same quarter last year.
Let's stop here for a moment. China calculates its growth rate differently from the USA. America compares a quarter to the previous quarter in calculating growth, while China compares the quarter with the one a year ago. What this means is that the American figure gives a more accurate expression of what is actually happening now. The Chinese figure can seem higher if the previous quarters saw higher growth. That is what happened here. Were China to use the American system for calculating growth, it would have reported growth at the rate of just over 6% for the quarter.
America would be thrilled to achieve a 6% growth rate, but in China it is quite a fall from the usual figure up in the 8-10% range. Even worse, the Chinese slower growth came while the government was pumping money into the economy in an attempt to speed it up.
On top of this news, we also have the question about how trustworthy the Chinese figures are. We know that China has new leadership. Did this new government push up the results reported in order to avoid looking like a failure during its first year in office? With China, one never knows.
Slower growth in China is a bad sign for the world economy, and it is obviously even worse if the growth rate continues to sag. Iron mines in Australia and Brazil send much of their production to China. All sorts of other natural resource producers around the world likewise make their livings supplying product to the Chinese. Shipping companies (which have already been severely battered by the world recession) have major routes to and from China. America borrows billions from the Chinese to finance its debt.
This may just be a down quarter with growth resuming full force by Summer. Then again, it may not. One thing is certain, though. The report from China is an alarm which ought not be ignored.
Let's stop here for a moment. China calculates its growth rate differently from the USA. America compares a quarter to the previous quarter in calculating growth, while China compares the quarter with the one a year ago. What this means is that the American figure gives a more accurate expression of what is actually happening now. The Chinese figure can seem higher if the previous quarters saw higher growth. That is what happened here. Were China to use the American system for calculating growth, it would have reported growth at the rate of just over 6% for the quarter.
America would be thrilled to achieve a 6% growth rate, but in China it is quite a fall from the usual figure up in the 8-10% range. Even worse, the Chinese slower growth came while the government was pumping money into the economy in an attempt to speed it up.
On top of this news, we also have the question about how trustworthy the Chinese figures are. We know that China has new leadership. Did this new government push up the results reported in order to avoid looking like a failure during its first year in office? With China, one never knows.
Slower growth in China is a bad sign for the world economy, and it is obviously even worse if the growth rate continues to sag. Iron mines in Australia and Brazil send much of their production to China. All sorts of other natural resource producers around the world likewise make their livings supplying product to the Chinese. Shipping companies (which have already been severely battered by the world recession) have major routes to and from China. America borrows billions from the Chinese to finance its debt.
This may just be a down quarter with growth resuming full force by Summer. Then again, it may not. One thing is certain, though. The report from China is an alarm which ought not be ignored.
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