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Wednesday, November 26, 2008

The Slowdown in China

by Calculated Risk on 11/26/2008 08:01:00 PM

More on the slowdown in China from Bloomberg: China Rate Cut Highlights Concern Over Slowdown, Unemployment

China’s biggest interest-rate cut in 11 years highlights government concerns that the country risks spiraling unemployment, social unrest and the deepest economic slowdown in almost two decades.
“China’s trying to draw a line under unemployment and civil unrest,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong.
Gross domestic product may grow 5.5 percent next year, the slowest since a 3.8 percent expansion in 1990 ...
China needs an annual GDP growth rate of something in the 6% to 8% range to provide jobs for all the people moving from the countryside to the cities. Anything less than 6% GDP growth will mean rising unemployment - and rising unrest. The rate cut yesterday was 108 basis points to 5.58% and follows the announcement of a $586 billion stimulus plan a few weeks ago.

But what happens to U.S. interest rates if China slows their investment in dollar denominated assets?