China’s bad economic indicators could impact U.S.

Rob Schmitz May 14, 2012

David Brancaccio: In an effort to encourage more lending in China, the central bank there is cutting the amount of money banks have to hold in reserve. China’s looking for a boost after a series of disappointing economic indicators in recent days.

Marketplace China Bureau Chief Rob Schmitz has more on what this means for the U.S economy.

Rob Schmitz: China’s central bank announced Saturday night it would make it easier for state banks to lend money. There are a couple of problems with that: Chinese banks already have ample room to lend.

And if lending does pick up, that’ll impact the cost of everything, says Chinese economist Andy Xie.

Andy Xie: Inflation is going to be pushed up higher, and that’s going to affect consumption, and it’ll affect social stability, indeed, because Chinese people are net savers. Their most important wealth is their bank deposits. When the value goes down, they get pretty upset.

It’s not a great time for a disturbance in the balance of China’s social stability — the government’s not been looking too stable lately due to a political scandal involving Bo Xilai, a politician who was being groomed for China’s top leadership. Higher inflation may also prevent the world’s fastest-rising consumer class from buying KFC, Apple products and GM cars.

And that, says Xie, is why Americans should pay attention to these recent fluctuations in China’s economy.

In Shanghai, I’m Rob Schmitz for Marketplace.

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