China’s recent recovery is losing steam according to newly released data. In the last year China’s exports have decreased by 10%. Imports have also dwindled, coming in at 1.9% lower. The trade surplus indicates that China’s economic rebound is in jeopardy.
Recent economic growth has been overly dependent on two components; an all too familiar housing market bubble and a government spending splurge on infrastructure. Trickling in from Hong Kong, where you will find one of the world’s priciest houses, Shenzhen has seen housing prices almost double in the past two years. If the property market derails China’s hopes for an economic recovery could be gravely postponed. Restrictions have been put in place by policy makers to help put the brakes on China’s overheated property market. For example, a 70% deposit is now required on any second home purchased in Shenzhen. Those who are single, may only buy one apartment. There has also been a serve restriction on contagion by those who want to increase housing prices.
China’s economic growth was partly augmented by a government spending spree on infrastructure. North America and Western Europe were once shadowed by the Chinese infrastructure budget. However, in their efforts to keep the economy steady, China’s extravagant spending may not have had the desired effect. Over the past 10 years, China has spent around $11 trillion on infrastructure. Many of the investments China have made in infrastructure were mismanaged; a large number of projects came in over budget, many have a very low amount of users, while others are severely overcrowded. These poorly executed investments contributed to an already swollen budget deficit.
The USDCHN has dropped 6% this year. While the Yuan is low there should be increased competitiveness and therefore an increase in exports, especially now that the United Sates are emerging from the Great Recession. But will a weaker Yuan be enough to sustain China.