Will China Implement More Stimulus?

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Will China Implement More Stimulus?

Will China Implement More Stimulus?



Concerns over the Chinese economy have been rumbling on for months now and the overnight release, that showed growth slowing to its worst level in three years, is certainly a cause for concern.

The Chinese administration has long been obsessed with its GDP figures and there are many who think that even the 7.6% announced overnight is a little optimistic. A lot of the recent economic indicators and business surveys have been telling a slightly different story.

Manufacturing in China is suffering and the official numbers always seem to be at odds with other independent readings. There seems to be little doubt that the various sectors are contracting faster than the data suggests.

China's economy is slowing because their biggest customers are not buying their goods. Whilst they are trying to replace lost Western demand with their own domestic demand, it's not currently taking up the slack. We saw indications of this earlier in the week when imports took a dive.

So why aren't the markets taking this data badly? This is probably because of the grey area surrounding the official figures and the fact that, despite the lower-than-expected result, China is still growing very nicely.

On top of this, financial spread betting investors remember that during the 2008 crash, when the global economy slumped into a deep recession, China implemented huge stimulus measures and barely blinked.

Due to the love affair that its leaders have with growth, it seems highly likely that we will see another bout of stimulus measures if they decide it's necessary. And of course it's not as if they would need to borrow any money to do so.

China Enterprises Index Chart

China Enterprises Index Chart
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By Simon Denham, 13 July 2012


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