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Fed's China comments reinforce unease about growth prospects

by Associated Press

BEIJING Sep 19, 2015 - 12:00 am GMT+3
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by Associated Press Sep 19, 2015 12:00 am
The Federal Reserve chief's rare comments on China reinforced unease its weakening economy might be headed for a deeper slump. But many experts still think fears of a China crisis are overblown. The world's second-largest economy has been stubbornly resistant to stimulus following five interest rate cuts since November. Growth in many industries is still decelerating. August exports and auto sales shrank.

Much of China's slowdown is self-imposed as part of the ruling Communist Party's effort to replace a worn-out model based on trade and investment with more self-sustaining growth driven by domestic consumption.


Instead of leveling off in what President Xi Jinping has dubbed the "new normal," economic growth has ground steadily lower as steel mills, coal mines and other heavy industry shed jobs, raising the risk of a politically dangerous spike in unemployment.

"We are not expecting a hard landing, but clearly there is no sign that things are improving any time soon," said economist Wei Li at Commonwealth Bank of Australia. Many economists say fears of a Chinese collapse are not grounded in reality.

The main stock market index, despite a collapse in prices in June, is up 40 percent from its level last year. Auto sales contracted by 3.4 percent in August but Chinese drivers still bought 1.4 million cars, minivans and SUVs. "GDP is still growing at a 7 percent rate, and that is not too shabby," said Carl B. Weinberg of High Frequency Economics in a report. "People are not being thrown out of work en masse, as they are in southern Europe, by bone-crushing economic contraction."

Abroad, weaker Chinese demand for iron ore from Australia and Brazil, copper from Chile and other industrial materials already has depressed global prices. Lower oil prices have pushed Canada into recession. China also is the biggest trading partner for most of its Asian neighbors and weaker demand for industrial components has hurt suppliers in Japan, South Korea and Southeast Asia. Chinese leaders, who say their growth target this year is "about 7 percent," have tried to lower expectations without sparking panic. Speaking last week, Premier Li Keqiang said the transition will be "painful and treacherous." He tried to downplay the focus on the headline growth rate, saying Beijing will accept a slower expansion so long as it generates enough jobs and incomes rise.


Chinese leaders' reputation as economic managers took a hit from their panicked, multibillion-dollar intervention to stop a slide in stock prices. That was widely seen as clumsy and ineffective. On Thursday, Yellen referred to "concerns about the deftness" of Chinese policy. Beijing still has room to stimulate growth by cutting interest rates or stepping up government spending, according to analysts.
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