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article imageBiden claims China slowdown won't affect US recovery

By Chris Paddock     Jul 30, 2013 in Business
China is both the second largest economy in the world, and the second largest trading partner with the US. Will its slowdown affect a budding US recovery? Not according to Joe Biden.
US Vice President Joe Biden told Bloomberg that while it will “affect the world,” China's slowdown “won't derail [a US recovery]”. This statement comes on the back of China's reported GDP growth being at just 7.5% for the second quarter this year. That's down on the 7.7% growth of the first quarter, continuing a down trend from the double digit figures which were common in the 2000s.
Global Effect
China is one of the US's largest trading partners, with $536.2 billion worth of products being traded between the two last year. However it is not just the US that is threatened by a slowdown in the Chinese economy, indeed commodity prices have already fallen on decreasing demand.
Australia has had to adjust its projected earnings following the fall in price of iron ore, of which it is the world's largest exporter. While according to forecasts by Barclays Plc, if China's growth were to slump to 3% then we would see a collapse in the price of copper by 60% and the cost of oil fall to just $70.
But is that as bad as it could get?
Debt Problems
One aspect of the Chinese economy that could affect growth rates is their level of debt. As reported by the BBC, an urgent audit of all government debt has been ordered by the newly installed premiere, President Xi. Some expect local government debt to be much larger than the reported 25% of GDP, which could lead to fears that they may not be able to repay.
Lack of transparency is a real concern in the China, the problem according to Austrian economist Doug French, being that, “[w]hile the oligopolies that dominate the economy appear to be private, these entities are really state controlled and operate under a patronage system that pervades all aspects of the Chinese economy.”
So even if Biden is correct that a slowdown in China's economy will not be disastrous to the US, the BBC's Laurence Knight may also be right to point to a number of factors including corruption, malinvestments and “shadowy” lending practices, that could make China's the next major economy to crash. And that would most certainly have wide ranging implications to the US and worldwide.
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