The US and China announced they would resume talks next month, but it doesn’t feel like a resolution of that problem is anywhere close. Which is one, but only one, of the factors that are weighing on China’s economic growth. The latest slew of predictions are tending to foresee the GDP growth rate heading below the magic 6 percent level. We remember in the early 1980s, people said China needed a growth rate of 7 percent to remain on an even keel. Things have changed enormously since then, of course, but it’s still interesting to speculate on what the number might be today.
There were new indications during the week of debt problems for both smaller provincial banks and local governments, though how serious the situation is, is hard to say. Another report worth paying attention to relates to swine flu which has led officials in the city of Nanjing to not only cap pork prices but also to impose limits on how much individuals can buy. Just how bad the pork situation is, is also hard to ascertain, obviously even for Beijing.
Another thing to catch our eye is that the latest Huawei phone is not going to be able to run Google apps, which has significant implications for Huawei’s business worldwide. But the top news was that in the cramped enclave on the south coast, the party blinked. The extradition bill that triggered the roiling events of the past few months in Hong Kong was cancelled, certainly to offset the possibility of massive numbers of people out on the streets for the wrong reason on October 1, the 70th anniversary of the establishment of the People’s Republic of China, a moment loaded with symbolic significance. The cancellation was itself a significant moment, not on the same scale of course, but it will rate a mention for some time to come. It was a concession welcomed by the markets and the Hong Kong stock market responded with a big jump. Let’s end on that “up” note. Our prediction for weeks has been that Hong Kong will be okay, because the stakes for all of it not being okay are just too high. And it looks a lot more likely that that might be the outcome than it did this time last week.
Have a good weekend.
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