China Says GDP Can Grow at 7.6% — If It Gets Some Help

108680884Yi Gang, the deputy governor of the People's Bank of China, recently said that the world's second largest economy has recovered from a nasty period in the first half of 2013. The Chinese miracle has started again, after a very short interruption. "I think for this year we're going to have certainly above 7.5 percent growth rate, maybe 7.6 percent, something like that," he stated. However, the magic will not happen without a lot of outside help, and that help will not be forthcoming.

Chinese officials have tried to mask what outside economists have known for some time. The rise of the middle class in the country has not tracked that of the United States in the 1950s and 1960s. Perhaps China's middle class is not paid enough. Perhaps they save rather than spend. Perhaps the recent economic slowdown has caused them anxiety. Whatever the reason, China has to fall back again on the core of its rapid growth — exports to the rest of the world. The threats to the growth of these exports are considerable.

As part of his presentation at an International Monetary Fund event, Yi Gang, remarked:

China needs a stable global economy, including a robust economic recovery in the developed economies and other emerging ones that the Chinese economy is closely linked to, an orderly communicated tapering by the U.S. Federal Reserve, as well as free trade and investment environment.

The halting economic recovery in Europe, the damage already done to U.S. gross domestic product (GDP) because of the federal shutdown (which could go on for weeks) and even trouble with red-hot and relatively large economies such as India and Brazil mean that the world outside China cannot provide the fuel to keep its GDP growth well above 7%.

Chinese leaders can whistle past the graveyard, but they know, and will not admit, that the world has changed recently. There are a number of reasons to believe that economic policies around the world, and the chance of lingering financial dangers (which still have not been fully addressed by regulation) may well keep worldwide GDP moving in and out of recession. And so, China's 7.6% forecast cannot come true.

Filed under: Economy
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