China Finally Admits Its Economy Faces Challenges

The Chinese government has finally admitted that the country is facing an economic slowdown. In comments posted at the Central Government website, Premier Wen Jiabao said he was concerned about the short-term prospects for China's growth. The premier warned that China's economy is facing mounting difficulties as a result of the international financial crisis and the unpredictable nature of the global economic recovery.

Jiabao's comments came after two key measures of China's manufacturing sector showed slower growth in June compared to May. The Federation of Logistics and Purchasing reported on Friday that its output index fell to 55.8 from 58.2. A similar survey by HSBC also showed moderation.

Adding to the uncertain outlook, many large exporting nations are voicing concerns that the problems in Europe and the austerity measures that are being put in place there will either halt economic expansion or, worse, cause a double-dip recession. June unemployment numbers in the U.S. showed that the American economy lost 125,000 jobs in June. The figure was higher than most consensus estimates.

On Friday, Goldman Sachs cut its forecast for China's GDP growth this year to 10.1% from 11.4% citing government restrictions on lending and real estate.

China may be lucky to post 10% GDP growth this year -- especially if data from Europe and the U.S. continues to show that the they cannot match the recovery that occurred during the first four months of the year.