Most countries can only dream of 7.3 percent annual growth. For China, however, such a possibility is cause for concern.
Data released over the weekend in HSBC’s Purchasing Managers’ Index report shows yet another month of contraction in China’s manufacturing sector. Such news is just one more reason that China may miss its official growth target of 7.5 percent for 2012. Several economists have recently cut their growth projections for the country.
The PMI report shows new factory orders falling for the eleventh consecutive month and new export orders dropping at their fastest rate in three-and-a-half years. FedEx CEO Frederick Smith said that such numbers could spell trouble for the global economy in 2013. Following three decades of double-digit annual growth rates, China now finds itself in unfamiliar, and uncomfortable, territory.
The PMI data follows a rash of troubling economic news for the country. As reported by the New York Times, direct foreign investment in China has fallen nine out of the past 10 months and consumer spending remains weak. In addition, the Shanghai Composite Index, China’s benchmark stock index, reached a two-and-a-half-year low last week. All of this despite efforts by the government to stimulate growth via interest rate cuts and approval of new infrastructure projects.
ANZ economist Liu Ligang told the Financial Times on Monday that “the policies implemented so far have failed to arrest a cyclical economic downturn.”
Consumer spending in the U.S. and the eurozone is partly to blame. China is moving more toward a consumer-based economy, but is still highly dependent on exports to those two regions. Unemployment rose to 11.4 percent in the eurozone in August, while it edged slightly downward to 8.1 percent in the U.S.
Many feel the Chinese government could do more to help the economy, but is hesitant to make any tough choices before its upcoming leadership transition. The once-in-a-decade change will take place during the party congress, which begins Nov. 8.
“There are tough choices to make, but the central government appears to be so paralyzed they are just sitting on their hands,” Johns Hopkins University political economist Ho-Fun Hung recently told the New York Times. “The situation is looking increasingly dire.”
David Ward is a writer living in Salt Lake City. Contact him at firstname.lastname@example.org