Four facts to be a bit more cautious about China

Maybe it’s excessive to worry and one should rather believe what Chinese authorities said about China’s economy. There is “certain turbulence” because China has to enter a “new normal”, but it is not heading for a “hard landing,” Premier Li Keqiang said in January 2015. As the world’s economic epicenter, any slight change in the pace of the Chinese economy’s development draws specific attention. According to Cyceon correspondents, a number of facts recently appeared which tell one should be more cautious when investing in China.

First, the economic growth has reached its lowest level since 1990 after a 7.4% expansion in 2014. Sure it is still very high but all the same this is a slowdown. Second, the supply on the real estate market has exceeded demand and the effects – potentially disastrous – could take some time to emerge. Gigantic ghost cities are often considered like just a small trivial issue of the irresistible rise of China to world’s economic leadership. Not to mention the many unknowns – risks, liabilities – of the shadow banking that has funded a sizeable part of the real estate boom. Well, pay attention, because the anecdote could be the tip of a much larger issue in the making.

Third, the fall in the prices of raw materials – oil, natural gas, iron ore – provided evidence of a longer than expected weakening of China’s global domestic demand. Fourth, China will raise its defense budget by around 10 percent in 2015, compared with last year’s 12.2 percent, the lowest in 5 years. This is a topic that has seemingly no economic meaning. In fact, it does mean that even the Chinese government has to spend a bit less than usual. China has become the world’s largest economy and just like when a stock reaches a highest on a strong overbuying momentum, there is most often a consolidation afterwards.