By: Dr. Mike Campbell

There is a certain degree of Schadenfreude to be enjoyed when reporting that the world’s second largest economy, China, has seen slower growth in 2011 than a year earlier. After all, a communist state is supposed to despise capitalism and the oppression of the workers, but, with respect to the world’s leading socio-economic system, China has adopted the philosophy that if you can’t beat them you should join them. It’s pretty clear that China is beating the capitalists at their own game.

Whilst it is true that the Chinese economy enjoyed growth in 2010 which was 1.1% faster than that seen in the current year, it would be disingenuous to suggest that China was slowing down to anything like the same extent as the likes of its major competitors. True, 2011 saw China’s slowest rate of growth for two years, but the figure itself is still hugely impressive when viewed against the backdrop of the performance of the world’s traditional capitalist powers – even Schadenfreude has its limits! The Chinese economy slowed in Q4 to grow at just 8.9% down from 9.1% in the previous quarter. This gives an annualised figure of 9.2% for 2011 – getting on for an order of magnitude stronger than most of China’s competing economies.

The allure of China for the rest of the world is that it has an enormous and largely untapped market which should be eager to buy goods from the rest of the world if and when China’s riches feed through to the proletariat. The population of China is around 1.3 billion people – roughly one fifth of the world’s total population. At the moment, domestic demand is not strong enough to sustain the Chinese economy, so it must export. This has been helped by the artificially low value of the Yuan against other major currencies. However, as the recovery, such as it is, slows, global demand has shrunk and it is likely that China will see weaker growth in 2012. It is also likely that China will not be able to resist demands for a more realistic valuation of the Yuan indefinitely.