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China Takes Its Foot Off The Gas

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Image source: testing / Shutterstock.com

What's going on?

A slew of recent data has suggested that China’s economy – the world’s second largest – might be slowing down somewhat…

What does this mean?

According to figures out yesterday, Chinese banks are dramatically slowing down the pace at which they make new loans to both individuals and businesses, following concern from the central government that the amount of debt in the economy is too high. Data out today, meanwhile, showed that Chinese industrial production slowed in October compared to the previous month following the introduction of tighter regulations. At the same time, retail sales dropped and investment into equipment and buildings grew at its slowest pace since 1999.



In short, China’s economy appears to be growing less quickly – and that’s probably a result of recent government initiatives to pare back borrowing.

Why should I care?

For markets: China has been an important part of driving forward the global economy in recent years.

An economic slowdown in China would likely spell bad news for many in today’s interconnected global economy, from international construction companies like Caterpillar to energy companies like Shell. While it’s true that the US and European economies are getting stronger and stronger, many companies worldwide have come to rely on China as an important market for their own growth.



The bigger picture: China’s debt is a problem.

Despite the recent measures promoted by the government, China still has one of the highest debt loads in the world in relation to the size of its economy. The question is whether the country’s government will resort to even stronger force in order to tackle the imbalances (like the debt problem) that have built up in the Chinese economy. If China restricted lending so much that economic growth lowered, that would resonate through economies across the world.

Originally posted as part of the Finimize daily email.

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