China’s Slow Road

As the eurozone crisis deepens, investors worldwide are hoping for a rerun of China's massive stimulus of 2008, which sustained impressive domestic growth while shielding the global economy from a worse collapse. But investors must face reality: China’s economy is slowing, and will likely continue to do so.

NOTTINGHAM – As the eurozone crisis deepens, investors worldwide are sifting through the semantics of China’s economic-policy pronouncements with increasing desperation. They seek signs of an economic “miracle”: a rerun of the RMB4 trillion ($628 billion) stimulus of 2008 that maintained impressive Chinese growth as the West slipped into recession – and shielded the global economy from a worse collapse.

But rolling out another investment program on such a scale would be financial suicide for China. Investors worldwide must face an uncomfortable reality: China’s economy is slowing, and will likely continue to do so.

Analysts have been quick to predict whether the China’s economic landing will be hard, soft, or bumpy. But vague labels hold little value, given sharp disagreement over their meaning. Indeed, while economists often define a hard landing in terms of declining GDP growth rates, placing it at 4-7%, a simpler model based on the principles of econometrics is enough.

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