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China Q3 GDP and End of the Country’s Growth Spurt

Douglas A. McIntyre

China's National Bureau of Statistics announced that third-quarter gross domestic product (GDP) rose 7.8%. Now, speculation and arguments over whether the People's Republic can maintain the pace in the fourth quarter and into 2014 have begun. It cannot.

Part of the improvement was due to stimulus forced by the central government, and some likely was caused by monetary policy. There are no indications that either of these will continue, at least aggressively. The rest of the factors that would affect growth are almost all against another GDP surge.

China's factory production triggered by exports has been under pressure for much of the year, and the pressure will worsen. The federal government shutdown will undermine U.S. growth, at least in the fourth quarter. Retail sales are a likely victim. Consumer confidence was nicked by the battle in Washington, and most Americans probably believe that the process will begin again in January as the debt ceiling and budget are taken up again. A weary American consumer could be the greatest single enemy to China's export machine.

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The economic situation in Europe has gotten very modestly better. However, many nations there remain in a financial struggle that has not been matched in decades. The term "improvement," which often is used to describe the tiny uptick in data, is overused. Most of Europe's economies are still dead.

For a long time, experts have believed that the driving force behind China's growth eventually would be a middle class that would act like America's did from the 1950s through the 1970s, at least. That has not happened, not on the scale necessary to move China to a consumer-driven economy. And recent headwinds could delay the process further. China factory wages will slow or have already, as manufacturing prices in the People's Republic are no longer as competitive as they once were. Manufacturing has started to move to other parts of Asia and developing countries outside the region, like Mexico.

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China's economy will continue to grow at a remarkable level; it just will not be as remarkable as it has been for a number of years.

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