The U.S. recovery is the most hotly debated topic in national politics, but news from China may end up impacting the nation’s economy more than any of the strategies embraced by the presidential candidates. According to a report in the New York Times, the Chinese are now facing their own real estate meltdown, along with an overall economic downturn, and the effects may well be felt here and around the world.
“A deepening slowdown would ripple across the world economy,” the Times reported on Friday. “Until now, China’s economy barreled ahead mostly unhindered as the main engine of global growth, even as Europe struggled with its government debt crisis and the United States limped along with a crippled housing market.”
The Chinese economy had seemed immune to the world-wide recession that has roiled the U.S. and Europe, but has now suffered what an official government website called “a sharp slowdown.”
Chinese economic difficulties, coming on top of a renewed recession in Europe, could put enormous pressure on the U.S. economy and bring about the feared double-dip recession. Any unraveling of the economic recovery is likely to have a direct impact on the presidential election.
The Pew Research Center reported that voters ranked the economy and jobs as the two most important factors in selecting a presidential candidate and that concerns about economic factors have narrowed President Obama’s lead over Republican challenger Mitt Romney. A strong recovery works in the president’s favor, but weakening numbers are likely to help Mr. Romney.
China appears to be cycling into an economic downturn similar to the one the U.S. experienced beginning in 2006.
“Though the Chinese economy continues to expand,” the Times reported, “construction workers are losing jobs in droves and retail sales grew last month at the slowest pace in more than three years. Investments in fixed assets have increased more slowly this year than in any year since 2001.”
“Not everyone is worried,” the Washington Post noted in a Friday report. “Analysts at Jefferies, a global securities and investment banking groups, say state data show that China’s retail sector is set to rebound, creating buying opportunities for stock investors. ‘Our recent channel checks with retailers and retail associations also suggest that retail sales are seeing a gradual recovery,’ they said in a report released Thursday.”
The Chinese government is also likely to make moves to stimulate the economy through increased spending on infrastructure development. China has the financial resources to make sharp increases in spending. Unlike the U.S., China has a low ratio of debt to economic output. However, the government is hamstrung by the fact that it has already built out much of the nation’s infrastructure.
Stimulus spending is one of the principal debate points in U.S. presidential politics, with some economists and politicians seeking more stimulus funds while others argue that the nation can’t afford to add to the national debt. Should the Chinese downturn decelerate the U.S. recovery, that debate could become even more critical to the political process.