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China cools down, may be in store for 'lost decade'

A Chinese boy grimaces in front of screens showing stock indexes at a trading house in Shanghai.

TEXT OF STORY

Bob Moon: For a while, global and American economic hopes have been pinned on continued growth in China. But the Chinese economy seems to be cooling down. Fresh indicators of China's economy are all pointing to a slowdown: domestic economic production is slow, and manufacturing growth there is down. Marketplace's China Bureau Chief Rob Schmitz reports.


Rob Schmitz: Last year at this time, China's economy was hot. But there was a downside: it was fueled by property speculation and unwise investments on the part of local governments. Beijing is clamping down on lending, the economy's responding, and now the party's over. There's a debate whether China will have a soft landing or a hard landing, or possibly a:

Michael Pettis: Long landing.

Peking University economist Michael Pettis says all you have to do is look back to countries that have had so-called "lost decades", like Japan had in the 90s. That's what's in store for China, he says.

Pettis: It's a very difficult process of adjusting from an economy that is heavily investment and export-driven to one that is domestic-driven.

In his lost decade scenario for China, Pettis foresees domestic economic growth rates declining to 5 or 6 percent. Considering the growth rate in the U.S. is 2 percent, it almost makes you wish for a lost decade. Of course, other economists disagree, opting to see this latest slowdown as a response to China's efforts to rein in bad loans and to rebalance its economy.

In Shanghai, I'm Rob Schmitz for Marketplace.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.

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