Experts predicted
the Chinese economy to slow down for the last five years but it never
happened-until now. Instead, the economy continued to grow and develop moving from
copying technology to inventing some of their own. As the world’s No. 2 economy
it has recently recognized that significant slowing in Asia and Europe may be
hampering its own growth and it is taking precautionary measures to prop up its
position.
In an
attempt to support development and investment it slashed interest rates at the
time when American’s have weaned themselves off easy money policies. By
injecting credit into their financial system they hope that their banks will
lend more money and encourage higher levels of investment. The interest rate on
the one-year loan has been reduced to 5.6% while the rate of pay on a one-year
savings rate is now 2.75%.
A low
interest and saving rate combination incentivizes borrowing money for growth while
discouraging the hoarding of cash by more profitable businesses. Through
keeping the money flowing in and out of large banks it sparks higher levels of
economic activity. It is believed that lower lending and borrowing rates will
spark higher levels of investments.
China’s
economy has been growing through cheaper production costs and higher levels of
investment. As the world experiences a slowdown and major nations are stimulating
their economies China has decided to jump onboard. Only the U.S. is projected to keep growing.
With a
growth rate of 7.3% and a decline in housing value the Chinese economy slowed.
It is still an impressive number and the Chinese sought to weather into more sustainable
growth pattern but a global slowdown has them on edge. China must continue to
export at significant levels or risk moving into a deflationary position.
No comments:
Post a Comment