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Cold winter ahead for China's economy

10-26-2011 07:45 BJT

Now that the U.S. sovereign credit rating has been downgraded for the first time, and the Greek debt crisis has reared its head again, the global economy has dropped quickly to a freezing point as well. Once again, the U.S. and European media have started to discuss whether China will save the world.

The problem is China has its own difficulties.

Three engines of China‘s economy slowing

Because of the emerging effects of China's domestic macroeconomic readjustment and control and the turbulence of the global economy, the three engines driving China's economy — investment, consumption and import-export — have all slowed. It has become a common view in the academic circle that China's economic growth is being restrained.

Since the beginning of 2011, China's monetary policies have been tight and will not be loosened in the short term. The credit environment for investment is becoming severer and local governments' financing abilities have been limited. China will not invest in infrastructure constructions on a large scale like it did two years ago. Meanwhile, the cost of private loans continues to rise, which is limiting private investment. And investment in individual business has already begun to falter.

Price level is still high

China's economic growth is losing its speed, but China's price level is still very high. China's Consumer Price Index (CPI) has been rising month-by-month since the beginning of 2001 and reached as high as 6.5 percent in July. The CPI of August 2011 increased by 6.2 percent compared to that of the same month of 2010. Although the year-on-year growth rate saw a small decrease, it still grew compared to that of July 2011, and if the carryover effect is not counted, the year-on-year growth rate was positive too. The core reason for high prices is the increasing price of food.

Turning point coming for real estate market

A series of real estate readjustment and control polices, such as purchase restrictions, loan limitation and financial deflation, have been implemented in China, and up to now, the trading volume in the real estate market has slowed down and the housing price level is also shaking too. The market is quite gloomy now. It is expected that both the housing trade volume and housing price will decrease in the fourth quarter, but will not decrease much.

From both the economic situation and the real estate market situation, it could be see that the real estate readjustment and control policies will not be loosened, and they should not be loosened.

Editor:Zhang Jianfeng |Source: China Youth Daily

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