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Economy

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At a glance
Under pressure: China’s economy posted slower growth in the first-quarter and its shaky recovery is losing steam, adding to pressure on its new leaders to boost growth and launch reforms to support entrepreneurs.
Growth stalls: April factory output and investment fell short of forecasts, while forecasts of an upturn in growth were dashed by the decline in the first three months of the year to growth of 7.7 percent from 7.9 percent the previous quarter.
Associated Press
Construction workers in China’s Shandong province are silhouetted against a residential project. Insufficient job growth is stirring civil unrest.

China faces unrest over slow economy

– Global economic malaise has knocked the stuffing out of Luo Yan’s business making toy animals.

Sales of Hello Kitty dolls and plush rabbits have fallen 30 percent over the past six months, according to Luo, owner of Tongle Toy Enterprise, which employs 100 people in Foshan, near Hong Kong. Orders from the United States and debt-crippled Europe are down 80 percent.

“We don’t talk about profits anymore,” Luo said.

China’s shaky recovery is losing steam, adding to pressure on its new leaders to shore up growth after a surprise first-quarter decline and launch new reforms to support entrepreneurs.

“The current leadership is not taking this issue very easily,” said Li Daokui, a Tsinghua University economist and former central bank adviser, at a financial conference organized by investment bank CLSA. “This is their first item: Make sure the economy doesn’t slow down too much,” Li said.

President Xi Jinping and other leaders have pledged to make the economy more productive but have yet to make clear how far they will go in curbing the dominance of state industry and making other changes reform advocates say are required. It is a politically thorny challenge but reform might be driven by slowing growth and concern about tensions due to a lack of new jobs.

April factory output and investment fell short of forecasts, adding to pessimism after forecasts of an upturn in growth were dashed by the decline in the first three months of the year, though to a still-healthy 7.7 percent from the previous quarter’s 7.9 percent.

“Slow growth may trigger reform,” said Citigroup economist Minggao Shen in a report.

Potential areas for change range from allowing private competitors into state-run industries such as telecoms to making it easier for entrepreneurs to get credit from banks that now channel most lending to government companies.

Market-style reforms were a low priority over the past decade. Beijing focused on building state-owned corporate giants in banking, energy and other fields and then responding to the 2008 global crisis by pumping up government spending. But the World Bank and other advisers warn that if it fails to allow more free-market competition, annual growth could fall as low as 5 percent by 2015 – dangerously low for a Communist Party that needs rising living standards to underpin its claim to power.

Any change that threatens to cut revenue or resources for state industry will face political opposition. Analysts expect no major decisions until a party meeting in October. Li, the former central bank adviser, said party leaders are trying to settle on a reform plan that can revitalize the economy while still winning agreement from politically influential factions.

“These people are true believers in reform,” Li said. “They have a strong sense of urgency that unless reforms are done, then social discontent may brew and then create conditions for drastic changes which will do no favor to anybody – that is, revolution.”

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