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Manufacturing in China slumps for seventh month

Rob Schmitz May 25, 2012
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Manufacturing in China slumps for seventh month

Rob Schmitz May 25, 2012
HTML EMBED:
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Kai Ryssdal: You know how everybody’s worried about Greece and Europe and how the economy over there’s gonna hit us here? Might I humbly suggest we keep on going right around to the other side of the globe?

From Beijing, China, today came news of a seventh straight month of a manufacturing slowdown. That’s in a manufacturing economy, mind you. From Shanghai, Marketplace’s Rob Schmitz reports.


Rob Schmitz: Up to now, China’s economic miracle has been fueled in large part by what’s called ‘investment-led growth’—in other words, building stuff.

Building infrastructure has made it easy for local bureaucrats to meet their GDP growth targets year after year, but the result has been a lot of wasteful spending.

The question for Tsinghua University’s Patrick Chovanec is: Could China use this slowdown to change its economic formula?

Patrick Chovanec: Will they simply step on the gas and try to pour more fuel on the fire and try to boost investment to boost in order to hit GDP targets, or will they accept that China’s economy really needs to slow and take advantage of that to reorient the direction of economic growth?

Chinese Premier Wen Jiabao had the answer this week: Build more stuff. China will embark on even more investment-led growth to keep its GDP moving at its normal bullet train-pace.

Peking University economist Michael Pettis says: bad idea.

Michael Pettis: It’s the typical short-term versus long-term tradeoff. By pumping up investment, you can increase growth or reduce the rate at which the economy is slowing down. But you do so at the expense of worsening the imbalances and increasing debt.

If there’s any good news here, it’s this: The U.S. economy is somewhat protected from a China slowdown because it hasn’t played a big role in feeding China’s investment boom. Countries like Australia and South Africa might be in trouble though, as they’re starting to see a slowdown in Chinese orders for iron ore and copper — a slowdown that most economists say won’t end anytime soon.

In Shanghai, I’m Rob Schmitz for Marketplace.

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