The hopes of the Chinese central government that its economy can avoid a recession fade with each passing month.
The CLSA China Purchasing Managers Index was unusually weak in August. According to MarketWatch "The CLSA figures point to the first contraction in manufacturing activity since November 2005."
A steep recession could do a great deal to eliminate China’s new middle class. It is a group which has never known even modest unemployment and one which accounts for a great deal of the consumption of goods imported into the huge country.
A big drop in GDP in China might actually stimulate the economies in America and Europe. The developed regions have come to count on China as an exporter of extremely inexpensive goods. Inflation in China, in part due to the improving wages in industrial cities, has driven the costs of manufacturing up sharply. The high price of exports from China’s facilities has taken the edge of demand in the West.
A slowdown in China could bring down labor costs for many of the country’s firms. It could also slow demand for gas as the number of people on the mainland who can afford a car falls off. The combination of dropping energy costs and contracting labor expenses could bring China back into line as the world’s lowest priced producer of consumer goods.
A recession in China could be very good for the US.
Douglas A. McIntyre
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