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Economic powerhouse China reports slowest growth in three years

By Catholic Online (NEWS CONSORTIUM)
July 15th, 2012
Catholic Online (www.catholic.org)

China is generally seen abroad and at home as one of the few nations that can currently maintain steady economic growth. With worrisome economic numbers out of the European Union and the United States, China is viewed as one of the few motors strong enough to power the global economy through the current economic hard times. The world economy has just been handed another bad bit of news, as China has reported its slowest growth in three years.

LOS ANGELES, CA (Catholic Online) - China's economic problems appear even worse than the latest numbers indicate. While the nation's 7.6 percent growth rate is the lowest in three years, some believe the government will counter the downturn with a massive stimulus package. This is seen as a faulty strategy, as China's local banks have been saddled with bad debt in the past.

According to the National Bureau of Statistics, Gross Domestic Product grew at a 7.6 percent rate in the second quarter of 2012, down from 8.1 percent pace in the first quarter and marking the sixth consecutive quarter of slowing growth on the mainland dating back to 2009.

The figures serve as another reminder that China's economy is slowing faster than the government had hoped. 

The ruling Communist Party in Mainland China has seemingly staked its legitimacy to an unspoken pact with its citizens: give up some social freedoms for continued economic prosperity.
"For the past 30 years, the Communist party derived a lot of its legitimacy from delivering the goods: better economy, better living standards," Patrick Chovanec, a professor of economics at Tsinghua University in Beijing says. "If the perception is that's changed, then it introduces a real element of uncertainty."

Global trade in 2008 ground to a halt and the country lost nearly 20 million jobs. Beijing responded with a $635 billion stimulus program that opened up lending from Chinese state banks.

The move helped successfully spurred growth across the country as local governments went on construction frenzy from new ports and airports to ambitious housing developments.

The extravagant loan, which chiefly benefitted state-owned enterprises with shady accounting practices, may have helped foster the environment for today's economic slowdown by providing a potential crush of bad loans that might very well batter the economy. 

"In 2008, the big problem was external, a slowdown in exports." Chovanec told NBC News, "This year the problem is internal. It's bad debt, and the burden the bad debt is placing on the economy."

© 2012, Catholic Online. Distributed by NEWS CONSORTIUM.

Article brought to you by: Catholic Online (www.catholic.org)