Feb 21, 2012

RBA Complacent on China as Evident in February Minutes

If China's bubble were to burst, that would clearly take Australia's economy down with it. The minutes of RBA's February meeting show a complete complacency over China's economic slowdown (and the power of Beijing to control it):
Importantly, though, the Chinese economy continued to expand strongly, albeit below the pace of the past couple of years, and inflation there had moderated. Prices and turnover in the Chinese residential property market had fallen, especially in the coastal provinces, where measures by the authorities to cool the market had been most aggressive;
In an extremely leveraged economy like China's, where the ratio of fixed investments to GDP runs as high as 50% according to some estimates, a small slowdown can have disastrous effects. Moreover, as we have seen in the past Beijing will probably fail in its attempts to fine-tune the economy due to the large degree of financial leverage in the massive construction sector.

(You can read more WhatIf posts here)

No comments:

Post a Comment