RSS
5 reasons China's economy is slowing down
After years of furious growth, the world's second-largest economy is losing steam, and the falloff will likely have negative repercussions for the rest of the world
China could "easily kickstart growth" by enacting a fiscal stimulus plan, but the government is concerned that a flood of money would cause prices to spike.
China could "easily kickstart growth" by enacting a fiscal stimulus plan, but the government is concerned that a flood of money would cause prices to spike.
AP Photo
C

hina recently released data showing an "across-the-board" slowdown in its economy, sparking concerns that it could drag down the global economy, too. "China has been the largest single contributor to global economic growth in recent years," says Keith Bradsher at The New York Times, and it's unlikely that the country's problems can be contained. "Remember: What happens in China, does not stay in China," says Thomas Mucha at Global Post. Here, five reasons why China's economy is faltering:

1. Economic weakness in the U.S. and Europe
China has long relied on its cheap export machine to fuel growth, but exports slowed dramatically in April. The main culprits are a "recession in Europe and a patchy economic recovery" in the U.S., say Aileen Wang and Nick Edwards at Reuters. The dip in exports was expected, given that "it's hard for the Chinese to sell stuff to Europeans who don't have money to spend," says Mucha.

2. A falloff in domestic demand
In more troubling trade news, China's imports in April rose an anemic 0.3 percent from the previous month, the lowest figure since the global economy was in the midst of the financial crisis of 2009. The data indicate that Chinese businesses "appeared to lose much of their appetite for products as varied as iron ore and computer chips," says Bradsher. That's bad news for companies around the world that hoped Chinese demand would be one of the "bastions of growth in the faltering global economy," says Elaine Kurtenbach of the Associated Press.

3. Inflation worries
China could "easily kickstart growth" by enacting a fiscal stimulus plan, says Yiannis G. Mostrous at The Market Oracle, but the government is concerned that a flood of money would cause prices to spike. Rampant inflation could "increase social unrest," and "discontent among the poor and middle class is a major source of anxiety for Chinese leaders," says Edward Wong at The New York Times. The government has taken modest steps to stimulate the economy, but more might be necessary.

4. Housing and banking are a mess
Following a real estate bubble, China's housing market is cratering. In addition, the country's shady banking sector, which helped inflate the bubble, is likely rife with bad loans, even though the government helps hide them. China's banking system is built on "quicksand," says Jonathan Weil at Bloomberg, and it's only a matter of time before "the jig will be up." 

5. A corrupt political system
Many of China's economic problems are really political in origin, says Wong. Economists are encouraging the government to open up the economy with private investment and currency reforms, but such changes "would involve a titanic power struggle" with "army generals, Politburo members, local officials, and the 'princeling' children of Communist party elders," who "have little incentive to refashion a system that fills their coffers."

Sources: Associated Press, Bloomberg (2), CBS, Global Post, The Market OracleThe New York Times (2), Reuters

EDITORS' PICKS

THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER

Subscribe to the Week