We’re probably wrong. We’ve been wrong often and for a long time about a serious hiccup in China’s amazing growth story. But something seems different this time. The slowing of American consumption of Chinese goods, the appreciation of the yuan, China’s high domestic inflation, and the crash of the Shanghai market, all point towards a significantly slower growth environment in China, and at reduced margins for businesses. It is also an environment in which inflation takes the traditional stimulatory measure of loose monetary policy off the table. So options for correcting the decline in growth are somewhat limited in the short term.

Suppose growth slows in China beyond the modest decreases currently forecast. Will the world start caring about China’s allegedly cooked books and its “dodgy” Foreign Direct Investment numbers? Could there be a new bad debt banking crisis of the severity that some have foreseen? Could there become more stories about foreclosures and bankruptcies than about tales of amazing growth and prosperity? What would be the impact, if any, of these unpleasant developments after the Beijing Olympics? We’re probably wrong about China’s economic situation and all these other matters as well. But just suppose…

This entry was posted on Saturday, April 5th, 2008 at 6:13 pm 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.