Whilst Stephen Roach seems to be becoming increasingly nervous about a China slowdown, the latest set of retail numbers continue to show strong growth.
Stephen Roach 13 June 2005
In short, in a rising real interest rate climate, there was good reason to believe that the asset-dependent American consumer was about to lead the charge in a long overdue global rebalancing.
That was then. No longer do I feel that the American consumer will be first to go in this adjustment process. I now believe that the Chinese producer will lead the way. A two-pronged slowdown now seems likely to unfold in China -- with internal policies aimed at a bursting of the property bubble and external forces putting pressure on China’s export dynamic (see my 23 May dispatch, “What If China Slows?”). Collectively, fixed investment and exports account for 80% of Chinese GDP, and these two sectors are currently surging ahead at a 30% y-o-y rate. With the Chinese government now serious in going after the excesses on the demand, supply, and financing sides of the coastal property bubble, the investment dynamic should slow appreciably.
Meantime the Chinese themselves continue to increase their spending:
China's retail sales rose at a faster than expected pace in May as higher incomes spurred spending on Hitachi Ltd. televisions, General Motors Corp. cars and Tsingtao Brewery Co. beer.
Sales increased 12.8 percent from a year earlier to 489.9 billion yuan ($59 billion), the Beijing-based National Bureau of Statistics said today on its Web site. The median forecast of seven economists surveyed by Bloomberg News was for growth to remain at April's 12.2 percent rate.
Of course Roach is right, an economy where 80% of GDP comes from investment and exports is hardly 'well balanced', the big question though is still when the 'unsustainable' will cease to sustain itself.
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