Down and Out in China – Continued

As I written in previous posts, things are not looking up for China, either economically or politically. Although the Chinese government has undertaken a massive stimulus on the order of $500 billion, it seems to be having little effect and deflation is taking hold. From the UK Telegraph:

Railway freight in China’s Shanghai region plunged 31pc in January and industrial production fell 12pc, dashing hopes that Beijing’s stimulus policies will soon begin to fuel recovery.

The country’s central bank said the economic outlook was going to bad to worse was still gathering pace, rains the risk that China could tip into a Japan-style deflation trap.

“External demand is shrinking, some sectors have overcapacity, and urban unemployment is rising. Downward pressure on economic growth is increasing. There exists a big risk of deflation,” said the bank. Factory gate inflation has dropped to minus 3.3pc.

And while China’s economy showed overall growth for 2008, matters are now essentially flat. And that means serious unemployment – and instability.

China’s economy continued to eke out headline growth of 6.8pc in the fourth quarter of 2008 but all the rise was in the early part of the year. On a month-to-month basis the economy has been flat for several months, and may even have started to contract. Electricity use has fallen sharply

The Shanghai industrial data is being watched closely as a proxy for the country since there is no nationwide data for January owing to the Lunar New Year. The output fall is adjusted for the holidays. The fall in absolute terms was 21pc, year-on-year.

Related posts:

1. Will China Bail Out the World?
2. China’s Coming Crash?
3. Down and Out in China
4. China’s Naval Ambitions
5. Is the Rest of the World More Capitalist Than Us?

Tagged as: China, deflation