IMF projections are in synch with two other forecasts; JP Morgan cut its 2012 forecast to just 7.5 percent—below the 8 percent that Beijing needs to keep unemployment under check. China’s National Bureau of Statistics expects an annualised rate of 8.9 per cent in the fourth quarter of 2011, compared to 9.5 percent in the second quarter and 9.1 percent in the third.
China has built its economy on the strength of its export capability, which in turn thrived on volumes to be competitive. Auto, steel and shipbuilding are the mainstay of Chinese heavy industry. All the three are hit badly. The austerity drive in Europe in the face of debt crisis is bad news to China’s export industries. Export growth in December on a year-on-year basis was 13.4 percent, the lowest since November 2009. In value terms, 2011 saw China export register a decline of $26 billion over the previous year. Yes, the country still ended the year with a trade surplus of $160 billion. But that feat was due to several factors, which are no longer active, as the Chinese economy managers are willing to concede. With the shining white knights of the world no longer in pink of health, there is no need for Peter Vidals to tell that the Chinese exports are set to decelerate further and fall into a single digit growth cycle.
Two calamities await Chinese economy therefore. One return to home of more and more migrant workers. The dollar meltdown saw more than 20 million Chinese migrant workers losing jobs. Two with no order coming, more and more Chinese factories will resort to the uncommunist/socialist practice of lay offs even as new jobs are not created. Unpaid wages, strikes, and unemployed workers will become the norm and not the exception as is the case at present.
The already overheated real estate market will see the Non-Performing Assets (NPAs) of banks to mount and thereby erode their capital base. 977.6 billion were pumped into real estate sector last year. The sector accounted for 13 percent of Chinese GDP. Henceforth these growth rates will remain part of just folklore.
Consider this reality. Home prices have fallen for three consecutive months by last December. And home grown economists are confidently saying that the property prices will see a 10 to 20 percent fall in 2012.Their assessment is based on the assumption that neither the central government nor local government would come up with bail out packages. Local governments are saddled with debts of $1.69 trillion by late 2010.
It is possible that the Chinese leadership may increasingly turn inwards their gaze to the dismay of their all-weather friends.
