China Review News (CRN) recently published a commentary analyzing the “cyclical fall back” of the Chinese macroeconomy as well as the much needed structural adjustments. The commentary focused on the “imbalance risks” and identified three major ones: 1) The volume of China’s exports is not in sync with the trend of the global economic recovery. The author expressed the belief that this was caused by the rebound in U.S. manufacturing, the increased costs in Chinese manufacturing, the appreciation in China’s currency, competition from other emerging economies, and new international trade agreements in which China does not participate. 2) China’s domestic economy suffers a significant imbalance between the real economy and the virtual economy. The financial industry and the housing industry are the primary contributors to economic growth, while the manufacturing industry is seeing minimal profits. 3) China’s actual interest rate is moving in the opposite direction from that of the global interest rate. While most of the countries in the world are maintaining zero or near-zero interest rates, China’s actual interest rate is growing rapidly. This significantly increases the cost of financing. Government branches, companies, and financial organizations are suffering from across-the-board debt increases.
Source: China Review News, February 7, 2014