Even as the global economy comes to terms with consequences of a downgrade of the US credit rating, China is reported to achieve a “soft landing” in the short term, according to research conducted by the Conference Board, an independent business membership and research association based in the U.S. A 1% increase in their leading economic indicator for China may temporarily allay fears of a cascading effect from the falling value of US debt and its diminished credit rating. Beyond six months however, China might face problems due to unsustatinable levels of bank lending.
In a recent development, Standard and Poor’s cut the U.S’ credit rating from AAA to AA+, down by one notch, following the recent economic brinksmanship displayed by the U.S, during the long-drawn political battle over the U.S debt ceiling. The downgrade is a cause for concern for China, the U.S’ largest credit holder and the world’s second largest economy and comes at a time when China is grappling with its’ rising inflation by introducing tough counter-inflation measures.
Zhang Xiaoqiang, deputy head of China’s National Development and Reform Commission, said,”There are many uncertainties in the developed economies. They are facing high unemployment, high inflation, and weak consumption demand. This will definitely have a negative impact on China on its exports, and commodity prices”.
With rising commodity prices and lower export volumes, China’s economy is slowing significantly and is expected to be at 8%, down from 9.6% in the first half. To turn things around, China will have to find the correct balance between measures to curb inflation on the one hand, and sustain long-term economic growth on the other.