Monday, 06 April 2015 05:41

Is China On Tight Ropewalk?

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Yesterday Manufacturing Index released by China Federation of Logistics and Purchasing (CFLP) has shown fall in New Export Orders, Stocks of Finished Goods, Backlogs of Orders, Imports and Stocks of Major Inputs. Overall the index fell to 51.0 for December from earlier 51.3.The economy has shown growth rate of 7.6% in last year that is the lowest rate in last 14 years. During the period of 2000 to 2009 the growth rate has remained above 10% average.

Slowing economic growth has posed a challenge to the new Chinese president Xi Jinping to manage reforms that he committed at the Communist Party Central Committee Third Plenum in November. It includes loosening the one-child policy, increasing property rights for farmers and encouraging private investment in more industries.

China equity market fell off last year on weak economic performance. Shanghai Composite Index was the worst performer at Asian markets. Chinese investors are liquidity sensitive so tight monetary policy may keep stock prices down. Heightening Government debt and real estate prices are also putting threat on economy. Further, high interest rate has increased funding cost that may hamper the industrial growth. Investment has increased in properties that might gain good amount to Chinese government. It can provide monetary support to strengthen market condition.

If world second largest economy will fall in financial crisis, we may find other commodity driven economies into the same condition.


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