Menu
Share
Share this story
Close X
 
Switch to Desktop Site

China's stimulus working – perhaps too well

Next Previous

Page 2 of 4

About these ads

More robust Chinese spending holds out promise for other struggling economies. Domestic consumption has long lagged in China, where households save much of their income and the government runs huge trade surpluses that are ploughed into foreign-currency reserves, mostly US government debt.

"It's not the big adjustment we'd all like to see in China away from investment and towards consumption. But if you have relatively strong [economic] growth, you still end up with strong consumer growth," says Michael Buchanan, an economist for Goldman Sachs in Hong Kong.

Economists say it's unwise to expect Chinese consumers to pick up the slack from debt-saddled Americans, as growth is still driven largely by state-led investment. But open Chinese wallets point to an eventual rebalancing of trade flows, so that Asian countries consume more of what they produce.

Massive spending on infrastructure

China's stimulus has soaked up demand for industrial output, giving relief to sectors hit by slowing exports. Huge spending on infrastructure projects like roads and public works have jolted the economy.

The downside, however, is that heavy industries like steel aren't rationalizing, says Arthur Kroeber, managing director of Dragonomics, an economic consultancy in Beijing. "The risk is that producers will expand capacity," he says.

Next Previous

Page 2 of 4


Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.

Loading...