China slowdown hits markets

China slowdown hits markets

There are worrying signs coming out of China with official figures showing manufacturing over there is contracting suggesting that we're likely to see a Chinese hard landing.

Bloomberg reports that Chinese banks could miss their loan targets for the first time in seven years. New bank loans have dropped 33 per cent from March with fewer Chinese companies in growth mode and the outlook over the next few months is grim. Total new loans for the banks in 2012 could be about 7 trillion yuan ($1.1 billion) which is well below the government goal of 8 trillion – 8.5 trillion yuan.

Why do we care? Because it will have a massive impact on the global economy. China's unexpected economic difficulties are unnerving investors in world markets, especially commodity markets, as China is the world's largest consumer of most raw materials and the second-largest consumer of oil. That's one reason why share markets are falling.

A deepening slowdown would ripple across the world economy. Until now, China's economy powered ahead mostly unhindered as the main engine of global growth, even as Europe struggled with its government debt crisis and the United States limped along with a crippled housing market. All of that has changed.

Combined with the crisis in Europe, it tells us that it's a good time to stay in cash and away from shares.

Photo source openDemocracy


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