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Thursday, July 28, 2011

What Happens if China Slowsdown

“Risky things are not in themselves risky if you understand them and control them. If you do it randomly and you are sloppy about it, it can be very risky.” The key to success, he said, is figuring out “Where is the edge? And how do I stay the right distance from the edge?”

How far away is China from the Edge?China's growth faces downward risk in the coming months amid global economic uncertainties and fast-rising domestic inflation, the Asian Development Bank (ADB) said.
However, there won't be a "hard landing" for the world's second-largest economy, because "policymakers have learned lessons from the 2008 financial crisis and they have the ability to avoid bad results", said Iwan Azis, head of the ADB's Office of Regional Economic Integration.

The risk of the US sovereign rating being cut to AA from AAA is likely to increase borrowing costs and accelerate the depreciation of the dollar, meaning losses for China and other countries that hold US Treasury securities in their foreign exchange reserves

The GDP growth projection by the same bank has been decreased from 10.3% to 9.6% in FY11 and even 9.3% in FY12.

Lu Zhengwei, chief economist with Industrial Bank Co Ltd, said that the August CPI figure might climb to 6.5 percent, and that might not be the year's highest level, considering rapid rises in food and non-food prices.
"Although the economy shows signs of a slowdown, it is moderate, which means a hard landing is unlikely. Another rise in interest rates is affordable for China and the central bank might lift rates in August," Lu said.

Despite all this even a stuttering China will demand commodities as inputs for manufacturing activity.Assuming that the exports fall,demand from the US and Europe slows and  commodity prices come down there is a silver lining that crude and food items will see a slower price rise which may have a tempering affect on the inflation that almost all South Asian countries are trying to control.

It will also have a positive affect in greenhouse gas emissions where in the past decade huge swathes of forest land in Brazil has been cut down to make way for soybean farming.Certainly this  is just an added benefit in the fight to save the planet but on a financial level might lead to a cycle of high demand and low production,so China is the key.