Issue of the week: Worries over China’s economy

Signs of trouble include a contraction in the manufacturing sector and the attempt of the People’s Bank of China to encourage more bank lending.

The Chinese economy suddenly looks vulnerable, said Damian Grammaticas in BBC​ The country’s massive manufacturing sector contracted in November for the first time in three years. The decline stems largely from troubles in the euro zone and the U.S., China’s two biggest export markets, but domestic orders also fell, suggesting that the home market won’t be able to “pick up the slack” of continued woes overseas. That’s not the only new evidence that the country’s “situation is particularly worrisome,” said Jeff Cox in In a surprise move, the People’s Bank of China loosened rules to encourage more bank lending. China’s leaders had been tightening bank lending to tamp down inflation created by the country’s property bubble, but the central bank’s new tack suggests that keeping the economy growing is now the greater concern.

The bank’s move won’t be enough “to avoid the bust that is coming,” said The Wall Street Journal in an editorial. Inflation, officially 5.5 percent, may really be closer to 10 percent, and loan defaults are on the rise. China is now suffering “the hangover” from the biggest stimulus program in history; the government’s profligate spending has led to “ghost cities of empty apartment blocks, unsafe high-speed rail lines, and crumbling highways to nowhere.” Its attempt to “put the economy on steroids” also fueled the unsustainable property boom, said Martin Walker in Prices for previously owned apartments in Beijing, Shenzhen, and Tianjin have fallen to record lows, and sales of new housing in 30 cities fell 42 percent between October 2010 and October 2011. It’s hard to see this ending well: Either new bank lending will push prices up and reinflate a dangerous property bubble, or housing prices will continue to tumble and spill into a banking crisis, with billions of dollars in property loans going sour.

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