By: Dr. Mike Campbell

Adversity likes company, so there is probably some comfort for the world’s major economies to know that China is not immune from the global slowdown. But before smug smiles settle on faces in Tokyo, New York and London, the slowdown in Chinese economic output in Q3 was to a level of 9.1%. The pace of Chinese expansion has cooled by 0.4% from the previous quarter’s reading of 9.5%, but the performance is almost an order of magnitude better than most of China’s rivals.

The slowdown has been attributed to attempts to rein-in inflation which is running substantially above the target figure of 4%. The core inflation figure was 6.1% for September, but food inflation was more than twice this at 13.4%. Although China has become the economic powerhouse of the global economy, there are still major inequalities between the new Chinese entrepreneurs and the rank and file comrades of the communist state. Such tensions always have the power to lead to civil unrest and so tackling inflation is a priority for the communist state.

There is also concern that the spiralling rise in the value of certain asset groups (most notably property values) has the capacity for becoming an asset bubble which will eventually burst with strongly negative consequences (the Irish sovereign debt crisis was largely inspired by a property boom – when that crashed, the government were forced to come to the rescue of the financial sector).

A further factor which is responsible (in part at least) for a slowing of Chinese growth is the global situation. With demand at best anaemic in the rest of the world because of concerns over the sovereign debt crisis and a general lack of economic confidence, demand for Chinese goods abroad is weakening.

The EU is China’s biggest export market worth more than €380 billion a year. The Chinese do not want to see a weak Euro (or a sovereign collapse in Greece) since it will harm their competitive edge in the region.