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China’s economy is still on a bumpy road

Let’s be honest, the growth rate of China’s economy is still ahead of many industrialised countries, but still it is on a slumpy road

China’s second quarter GDP Gross Domestic Product is just matching the annual goal of the government at a growth rate of 7.5 %, however it is the slowest since 1990.

Industrial output rose 7.9 % in June as against the same month in 2012, however the forecast was 9.1 % and the actual result is lower than in May with 9.2 % growth.

Fixed asset investment had a growth in the first six months of the ongoing year of 20.1 %, the agreed forecast was 20.2 %.

The bright spot is consumer spending, it advanced in June 13.3 %, after a 12.9 % growth in May. On the other hand disposable income growth for urban households slowed to 6.5 % (9.7 %) on an annual basis in the first half of 2013. Sales of cars were rising 12 % in the first half of 2013 or to 10.7 million verhicles. Automotives are expecting solid sales for the reminder of the year.

Chinese are spending also outside of China. The number of Chinese tourists  travelling abroad has doubled from 2007 to 2012 to 83 million people.

A new Standard & Poor’s study of around 90 of China’s biggest companies registers that these firms will cut total capital expenditures in the ongoing year, this for the first time in at least a decade. Investments in factories, assembly lines, smelters and telecommunication links tend to create big demand for raw materials China has to import. Some experts voice the opinion that China’s resources boom is over.

By contrast, makers of consumer goods, such as home appliance, clothing, food, etc., as well as companies selling sophisticated equipment to businesses are more focused on China’s increasingly prosperous population of shoppers. For instance German Dienes Group’s sales to China tripled from a decade ago to9 around EUR 3 million (USD 3.9 million), and accounts for as much as 8 % of Dienes Group’s EUR 40 million in revenue, and the company is convinced that growth will continue because of the increasing per capita GDP, creating more demand.

China is positioned to contribute 13 % of global economic activity this year, compared with 5 % in 2006, thus China’s effect is worldwide of significance.

If China’s economy would further decline, this would make the world tremble. An inherent risk is the fact that Chinese firms, reluctant to lay off workers, could be obliged to cut staff, hurting spending at home and by undercutting the goal of shifting toward a consumer driven economy. Experts caution that China’s shift is in the early stages and investment growth has continued to lead the economy. The balancing process toward a consumption driven economy could take years.


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