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China's Economy

By December 4, 2011

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China's Economy

Photo Credit: Duboix

There's no doubt that the Western world understands the need to help countries of the European Union in 2011. As financial advisors discuss the state of the EuroZone, they simultaneously say that Europe's woes are really old news.

What keeps them up at night is the Red Dragon. Not the movie starring Anthony Hopkins, of course. China worries economists. Financial advisors using their research say China's markets warrant extreme caution in 2012.

After years of double-digit economic growth, Chinese government officials published a five-year report (2011 to 2015) earlier this year. The goals of the next five years include reducing exports and manufacturing and increasing consumption in The People's Republic of China.

Costs of commodities continue to increase in China, and so does the cost of food. Inflation in China (about 5.5%) may be lower than inflation in India (the food basket rate of inflation was recently recorded at about 8% in November 2011), but the region's high growth demands for goods and services is likely to keep inflationary pressures constant for the next few years.

Demand for energy, precious metals (gold, and silver in industrial use), and other metals may reflect peaks and valleys in the financial markets. Housing demand in China's cities, after years of aggressive construction plans, is soft in 2011. According to residential real estate experts in China, real estate investors could lose money in the short term.

China's S&P credit rating is AA-. Although the country's sovereign debt rating is investment grade, many Chinese corporations followed by Standard & Poor's show signs of economic stress. Watch for additional downgrades of larger industrial corporates in 2012.

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