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The good, bad, and ugly behind China's weakening economy

Will weak economic indicators out of Beijing be enough to hurt the U.S. economy? Economists differ.

Kai Ryssdal: There's a natural temtpation -- what with all the economic gloom and doom in Europe once and again -- to look to Asia for a little cheering up. Yeah, no, that's not going to happen. Best guesses had been that the Chinese economy would pick itself up and shake off the slump it's been in. But then the numbers came out last week, showing everything from industrial production to housing to domestic spending was off.

Our China correspondent Rob Schmitz reports.


Rob Schmitz: While economists were making grand -- and incorrect -- predictions about China’s economic rebound, CLSA economist Andy Rothman was eager about something else.

Andy Rothman: What I’ve been waiting to see is: are they willing to cool off the growth rate of spending on public infrastructure at the point when it’s clear that they've already built so much of it, and that’s starting to happen this year. And in fact, it’s the main reason China’s economy is slowing down.

And that, says Rothman, is a good thing for an economy that’s been addicted to constructing new roads, buildings, and high-speed trains to boost GDP growth.

Rothman: This is, in my view, the Communist party saying we’re not going to be build bridges if they’re not really needed.

As China spends less on infrastructure, it may spend more on health care and other social programs that’ll have a more direct impact on peoples’ pocketbooks. That, in turn, could help boost the consumption of products from brands like KFC, Apple, and GM -- all American companies that are already showing record profits in China.

But William Hess, director of PRC Macro Advisors, says slower growth in China is a looming threat.

William Hess: The U.S. and the Obama administration wants to boost exports to China. Now if China’s facing a shortage in domestic demand, especially in areas like capital goods, where they themselves want to become global exporters...

Then, says Hess, U.S. companies will face stiffer competition from Chinese brands. But on the upside, U.S. exports to China have grown 540 percent since China entered the WTO 11 years ago. U.S. export growth to the rest of the world during the same period? 80 percent.

In Shanghai, I’m Rob Schmitz for Marketplace.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.
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