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People's Daily Online>>China Business

China faces two risks behind economy slowdown

By Lian Ping (People's Daily)

08:45, January 20, 2012

Edited and translated by People's Daily Online

Mainly due to the weak external demand and a slowdown in investment growth, China’s economic growth rate fell for four consecutive quarters last year. Growth in investment and export will probably slow in 2012, leading to a continued slowdown in its economic growth.

Support policies, further increase in people’s income, and declining inflation will ensure steady growth in consumer demand in 2012. A large number of affordable houses, whose construction began a few years ago, are likely to be sold to the people in need this year, which will increase housing-related consumer expenditure.

Due to the weak external demand and economic slowdown, the Chinese government will increase investment in public faculties and infrastructure to ensure steady growth in household consumption.

At present, China is faced with two major risks. The first is a possible rapid outflow of short-term capital. Due to the deteriorating European sovereign debt crisis, temporary appreciation of the U.S. dollar, growing concern over a hard landing in the Chinese economy, and expectations of the RMB depreciation, short-term foreign capital may flee China on a large scale, which will cause volatility in the country’s foreign exchange, real estate, and stock markets.

The second risk is that certain local governments may default on their debts. 2012 is a peak year for local governments to pay off their debts. However, as China’s economic growth continues to slow down, and its real estate sector remains under considerable pressure, certain regions may witness a decline in their fiscal revenue this year. So certain local governments, especially those below the municipal level, are likely to default on their debts this year.

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Chinhomiah at 2012-01-22180.129.74.*
There is a third risk that should not be overlooked - the collapse of the US dollar. Friends of China should acquaint themselves with this possibility. Very simple. Do a yahoo search. Type keywords - US dollar collapse - and one will find a vast array of literature on this subject. Some experts are predicting that it could happen this year. The argument that is most persuasive, as I see it, is that the US government may just see devaluation of the US dollar as the only way out of their current malaise. Washington may deem this preferable to default. Devaluation will probably be done over a long weekend. Americans will find to their consternation when their banks reopen the following monday that their dollar is worth only 40 or 50 cents. Hyper inflation will follow and, if the situation is not handled properly, there could be rioting in the major American cities. This will further undermine America"s pretensions as an imperial power. The unfortunate thing is that China will probably lose a fair bit too. That is why I think that Beijing should divest as quickly as possible its paper American assets before any devaluation or, worse, dollar collapse. George Soros and, recently, Damon Vickers (in his book THE DAY AFTER THE DOLLAR CRASHES), are suggesting that there may be no way out but to have a supranational body in the aftermath that will come out with a new global currency in replacement of the discredited dollar, and the acceptance by creditors such as China and Japan of a fraction of what the US owes them. If that is the scenario, China must strive to make sure that it has a bigger say in this supranational body than the current IMF. Whatever losses China may have to incur should be ofset with a greater role for the country in the new international financial scheme of things.
wende at 2012-01-2071.255.83.*
Central government officials should stress importance to the local officials to be cautious in any expenses. They should base their studies on the return of investment aspect of their projects.
george at 2012-01-2059.161.166.*
there are lot of challenges for the china in coming future . some countries are playing controller role to controller teir opponent countries growth.China should use the past experiences which are faced by democratic countries and capalist countries tactics played against them.I mostly worried about corruption in the world.communists have great history from sportacus to cheguera who died for the people"s equality.My humble request to the China government,we will be confident and feeling secured by seeing the only most successful democratic country china.we should be like role model to other countries to make them to work for others.So don"t deviate or compramise on the principles.
  

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