>SLOWDOWN IN CHINA: Major driving forces of the Chinese economy are investment, consumption, imports and exports

China, the manufacturing giant of Asia is expected to witness a slowdown in its growth trajectory. Its growth may lose momentum due to the lack of demand from the developed nations. It can partly be blamed on Euro zone’s deteriorating fundamentals. China, the fastest growing economy moderated to its lowest pace in more than two years. China has always been the main source of optimism in the global economy and signs of a slowdown in China, coupled with trouble in Europe, show that industrial commodities are in for a bumpy
ride.


The demand for Chinese goods is continuously worsening due to the economic woes in Europe. Exports rose at the slowest pace in almost two years in October as worsening situation in Europe crumbled demand. The weakness in export demand is expected to continue in the near future due to the economic slowdown across the globe.


The Chinese economy is expected to register a second year of below-trend growth because of the headwinds from the global slowdown, domestic housing market weakness and limited room for policy stimulus.


A pause in the growth of China:
The Gross Domestic Product (GDP) of China started decelerating in early 2010 from 11.9% to 9.1% for the latest quarter. The GDP growth rate of the third quarter of 2011 decreased to 9.1% compared to 9.7% and 9.5% growth rates recorded in the first and second quarters, respectively. China's economic growth rate has declined for three successive quarters and further it is expected to be around 8.7% for the final quarter.


The four major driving forces of the Chinese economy are investment, consumption, imports and exports. Let us look at the constituents of the GDP:-

• Industry sector contributes 47% to the total GDP (inclusive of Investment, Real Estate, Manufacturing, Mining etc)
• Services sector contributes to 43% of the total GDP, and
• Agriculture’s contribution to the GDP is 10%

This indicates that China’s economy is heavily relying on the industrial activity and any slowdown in industrial activity will be a pain for the entire economy. China, as an export-oriented economy is dependent on the developed nations (EU, US, UK and Japan). So, if these economies are witnessing a slower growth, then the dependent economies are more likely to face a ripple effect. The global GDP growth has been revised lower to 1-1.5% from 2.5%, this gives a clear indication that all the major contributors to world GDP will face a slowdown. In 2007, the last year before the international financial crisis, China accounted for
only 6.3% of the world GDP. In the following three years the world economy expanded by $7.2 trillion, while China’s economy grew by $2.4 trillion, which means China accounted for 33% of world growth.


To read the full report: SLOWDOWN IN CHINA
RISH TRADER