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China At A Turning Point?

Two pieces in the NY Times raise serious questions about China and its pivotal position in the world economy:

China Takes New Step to Prime Its Slowing Economy - David Barboza via NYTimes.com — China cuts the reserve ratio requirement for the biggest Chinese banks to 20.5% from 21%, hoping to free up capital for investment. However, there is a large and growing amount of unreserved debt in China which could be a bubble that would burst in a serious economic downturn, a point that Barboza does not make.

Chinese Labor, Cheap No More - Michelle Dammon Loyalka via NYTimes.com — Growing numbers of China’s migrant workers — essential to the growing manufacturing industries of China — have failed to return to work after the Spring Festival, whenmore than 100M workers traditionally return to their home towns to visit relatives. This will drive up wages, and indirectly, prices for export goods. Again, this will have a braking effect on China’s economy.

These, and other factors, like the economic crisis in Europe and the slow rebound in the US, could combine into a serious problem for China. In the long-term, the growing number of older Chinese poses a demographic challenge to the country, which has historically provided almost no services to citizens.

Posted by
Stowe Boyd