The magnitude of China’s slowing economy was put into some focus over the weekend after Chinese Premier Wen Jiabao warned of “huge downward pressure” facing the nation. His comments are the most blatant and blunt to date about the state of China’s economy.
At the same time, Wen tried to ease fears that the economy was growing much slower than expected, saying the economy was “running at a generally stable pace,” reports The New York Times.
Many estimates put China’s GDP growth for this year somewhere between 7 to 8 percent, which is down considerably from the country’s 10 percent-plus growth in recent years. But Gordon Chang, Forbes columnist and author of “The Coming Collapse of China, believes China is on a zero-growth trajectory due in large part to waning electricity consumption.
In April, China’s electricity output increased just 0.7 percent year-over-year, which is the slowest pace in nearly three years. In May, output increased by 2.7%. In the first five months of 2012, China’s electrical output rose 4.7 percent — less than half of that during the same time period in 2011.
“Because the growth of electricity historically outpaces the growth of the economy, we’re talking an economy that has flatlined,” says Chang, who is a longtime skeptic of China’s mega-growth.
Recent Chinese data also suggest China’s growth is stalling, perhaps at a faster clip than most forecasts. Wen’s comments come on the heels of an unexpected interest rate cut by China’s central bank last week, which was the second in four weeks. And on Monday, China’s consumer price index fell to a 29-month low of 2.2 percent in June from 3 percent in May, easing inflation fears.
Wen also pushed for the Chinese government to take a more aggressive approach, using both fiscal and monetary policy to help prop up China’s slowing economy. This fall in consumer prices may give the government the leeway to do more to promote growth without stoking inflation.