Mixed signals from the East

  

Li Keqiang the Chinese Prime Minister is now targeting growth this year of 7.5%.

 

This marks a more conservative view than that taken by the World Bank, as well as private sector banks, who had predicted growth to slow to 8% this year.

The government has said it will take steps to try to support the economy but faces a difficult task in putting more money into consumers’ pockets and to effect the shift from state directed investment to consumption and services.

Another problem facing the government is the amount of money held in China’s shadow banking system (thought to be around £200 billion) currently invested in Trust Loans and High Yield Bonds.

As witnessed by the fall out in the Western banking system these financial “instruments” carry an unquantifiable degree of risk.

The spectacular growth in the Chinese economy was fuelled by an export boom as China established itself as the workshop of the world.

China’s exports have picked up in recent weeks but with European economies still in a fragile state the implication for export growth is obvious and the potential for the Euro debt crisis to spread would inhibit export growth in the months ahead.

The other side of the equation is domestic demand. As was witnessed in Britain during the Industrial Revolution more and more people are leaving the countryside to seek work in the cities. By 2035 it is estimated that 300 million will have re-located bringing with them increased demand for housing and consumer goods.