China’s exaggerated slowdown

The central Bank of China has warned against an exaggerated slowdown in the economy as the announcement came as they indicated that, even though the demand for the nation’s exports has fallen, they will won’t loosen monetary policy.

Furthermore, some analysts have warned against the risk that Chinese growth might “boil over” as a result of tight economic policies, as both the economy and the external environment have changed over the last year.

There is a catch 22 situation over exports, as it is clear that exports face quite big risks due to the global slowdown, yet domestic investment is slowing as a result of tight macro policies and the cost increases, namely in fuel and raw materials.

A harsh winter in China’s manufacturing heartland, last month’s quake and the energy crisis, have caused a blip in this sector which has had an adverse affect on the economy. Despite this, the economy has expanded by 10.6 percent in the first quarter compared to 2007.

Inflation quickened to 8.5 percent in April and it is clear that inflation will be difficult to control, as a result of higher costs in terms of energy, labour and raw materials as well as loan growth.

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