Ongoing Slump in China’s Economy Represents a Glimpse of Financial Crunch of 90’s

Stock Markets in Asia Opens With Mixed Trend over Chinese Liquidity Concerns
Stock Markets in Asia Opens With Mixed Trend over Chinese Liquidity Concerns

The weaker than expected data from China, the world’s second major economy, suggests a drawn out, which could be the worst since the 1997-1998 Asian Financial Crunch. Data for May indicated that economy is stagnant, which has remained so after slight recoil. The growth risk towards the down side thus predominates currently. This throws light on the ongoing concerns, which are the unrelenting deflation in producer prices and retract in the growth of fixed asset investments.

The deflation in producer prices has remained for the last 15 months, which during the 2009 economic crises was for 12 months. This clearly shows that this round of recession may turn out to be the worst since the 90’s crunch in Asia, which led China into 31 consecutive months of depreciation.

In May, the producer price index here plummeted to 2.9% lower than the 2.6% fall seen in April. Deprecation is toxic as it can cause a huge impact on the profitability of any business and affects investments in equipment or supply.

The fixed asset investment in China also marketed a growth decline to 20.4% year on year in the January-May session, which was 20.6 during January to April, indicating a slowdown in manufacturing. The upside of investment currently seems a difficult destination to reach until the restraints are lifted. Meanwhile, the real estate sector too showed decline in May, the growth of new homes caused a fall in the purchase of land and properties. Softening in housing space indicates a downtrend in the coming months.

The ongoing disappointment in China’s economy led banks such as Barclays to trim their growth forecast for the mainland economy this weekend. RBS trimmed its GDP growth to 7.5% from the previous 7.8%, and Barclays lowered it to 7.4% from 7.9%.

It’s even speculated that Beijing might reduce its growth objective for the next year to 7%, but the actual growth would remain around 7.4%, nearer to the target for 2013.

Essentially, China is experiencing a changeover period and the sting is inescapable. The economy is experiencing a deprecating of the global demand and domestic investment gurgle, and the search for new growth drivers and momentum through novelty, grading and reasonable growth remains.