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China's Engineered Economic Slowdown Could Drag on Global Recovery

China's State Council acknowledged the "increasing downward pressure" facing their economy this week. In a statement, the Council stressed that more attention would be paid by policymakers in the future on establishing "stabilizing economic growth," which is to say sustainable economic growth that still maintains adequate demand levels for the world's second-largest economy.

In the first quarter of 2012, China's gross domestic product (GDP) growth slowed to a still-meteoric 8.1% from 8.4% in the fourth quarter of 2011. While this has raised concerns about further deceleration at a time when the global economy needs it least, the slowdown is taking place by design. The Chinese government set the full-year GDP growth target at 7.5% for 2012, marking the first time in eight years that this target has been under 8%.

China's attempts to engineer a soft landing for their economy, although necessary from a sustainability perspective, have come at a less-than-advantageous time for the global economy at large, and particularly for the manufacturing sector. "The Chinese have continued to try to slow things down," said NACM Economist Chris Kuehl, PhD. "That has reduced their demand for goods from the U.S. as well as from other nations that the U.S. sells to. The export business has been critical for the U.S. manufacturer and it therefore causes some heartburn when those foreign markets seem to stumble."

Overheating seemed to be a real danger to China's continued regional economic dominance near the end of last year. "Inflation was hurtling out of control with a real rate over 6% and food inflation close to 12%," said Kuehl, who noted that a self-imposed slowdown designed to mitigate these effects seems to have been largely effective. "The inflation rate has fallen back to less than 4%," he noted, "but now the question is whether China will desire a resumption of their traditional growth rates, and whether that is even possible."

"As long as China is resisting the urge to stimulate growth, they will not be playing the role of economic engine for the region, and that slows down a good chunk of the global economy," Kuehl added.

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-Jacob Barron, CICP, NACM staff writer