Dealing with a Double Whammy
By most measures China's economy has slowed quickly since the last quarter of
2011. Electricity production, the National Bureau of Statistics reports, grew
1.7 percent in April and May from last year. Over the past decade the annual
growth rate was 12 percent. Also in April and May, the railroad ton-kilometer
figure grew by 1.3 percent compared to the same months last year, down from the
6 percent growth seen from 2005 to 2011.
Due to the resulting decline in commodity prices, the inflation situation has improved, which lessens pressure on the household sector. At the same time, the slowdown has not caused widespread reduction in employment. There may be some impact on construction jobs already, but, as the labor market was very tight before the slowdown, the employment picture remains healthy.
There are no widespread bankruptcies. The main reason for this is government-owned banks not foreclosing on delinquent businesses. Of course, banks may have more bad assets down the road, which is the cost for achieving a soft landing.
State-owned enterprises reported 11 percent growth in sales but 10 percent decline in profits in the first five months. Private enterprises may have fared worse. It appears that the slowdown has impacted government revenue and business profits rather than labor income.
Asset markets have fared badly this year. The stock market is depressed. Despite some pickup in the last two months, the property market is depressed and may remain so for several years. As the slowdown disproportionately hits business profits, asset prices will likely remain depressed.
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