We have been saying for some time that growth in China should slow down, and the WSJ reports today that China’s GDP is slowing from its 9.5% first half pace:

The central bank said that in general the economic-growth rate is slowing, but that forces remain that would pull growth higher. Among the problems noted were high fixed-asset investments in some sectors, the tight situation in coal, power, oil and transportation, and the large trade surplus, or margin by which exports exceed imports. The central bank said its macroeconomic policies will be aimed at expanding domestic consumption to promote continued economic growth and basic stability in prices. In the first half, China’s gross domestic product, or the total value of goods and services produced, rose 9.5% from a year earlier.

The expansion of domestic consumption in China may contain more than a little wishful thinking. In the post below, we show that the average American income per capita is 12 times greater than the incomes of the 20% richest Chinese people. Intuitively, it seems to us that China’s prosperity is inextricably tied to ever increasing exports, and that China is some years away from generating enough internal consumption of its products to achieve self-sustaining domestic economic growth. (This export-led growth likely faces some problems, as we have said previously.) This imbalance in China’s economy has a great many implications should growth slow considerably. These include domestic stability (China has said that it needs to grow at least 7% a year to avoid labor force problems), and the impact on global demand in those items where China has been a large marginal consumer, such as oil.

This entry was posted on Tuesday, September 20th, 2005 at 9:18 am and is filed under China, General, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.