Chinese Economy Appears Healthy Moving Into 2011

Provideo Financial analyst Lee Jacobs comments on the November economic indicator numbers released in China over the weekend. Other than inflation which is a major concern, China's economy is healthy and growing.
  • (1888PressRelease) December 15, 2010 - China released its economic indicators for November over the past weekend and with the exception of inflation the powerhouse seems to be well intact. Moving into 2011, inflation is China's primary economic concern.

    Year on year Chinese inflation rose 11.7% on "foodstuff" compared to 1.9% on "non-foodstuff." Food prices throughout china are rising at an unsustainable rate, and will cause major problems in the near future if the Chinese government doesn't act. China has faced international criticism for purposely undervaluing its currency and this seems to be one of the effects. While exports are thriving based on value, the import of costly food is beginning to take its toll on the Chinese economy. According to Lee Jacobs of Provideo Financial, "though china has been extremely successful in growing its economy over the past 10 years with an artificially weakened currency, if they want to successfully make the transition to self sustainable economy that is less dependent on foreign export, they will have to allow their currency to strengthen to reasonable levels." Though this is a difficult thing to achieve, the strong results in retail sales and industrial production mean that policy makers have a bit of wiggle room to tackle the inflation problems.

    Retail sales grew about 19% year on year to 1.39 trillion yuan with one of the fastest growing sectors being gold and silver jewelery. Year to date, the Chinese have spent 114 billion yuan on gold and silver jewelery largely in what seems to be a hedge against inflation.

    Industrial production increased 13.3% and according to Jacobs will likely continue along this upward trend through 2011. "So long as the yuan is cheap, industrial production will continue to boom. The Chinese are cranking out industrial products for both domestic and international demand, and with the infrastructure now in place, this isn't going to change anytime in the near future."

    All in all it seems as though the Chinese economy is still thriving. Everybody is waiting for china to slow down, and eventually they will, but that time hasn't come yet. With inflation posing the largest problems for china, the strength of their overall economy should be enough to counter that with the right policy. "I expect 2011 to be another good year for China... there will likely be some speed bumps dealing with inflation, and their growth numbers will likely drop slightly compared to 2010, but all in all china is healthy... at least for now."

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