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Unlike most of the world’s economies, China is widely believed to need a minimum of 7 percent annual growth to maintain social stability. New jobs are required for the millions of young workers graduating from school each year and the millions more that continue to migrate from rural areas into the industrialized urban economy.
As a major consumer of world energy supplies, the state of China’s economy will play a major role in oil demand for a long time to come. Officially the Chinese government remains optimistic that it has the internal resources to continue to grow even with faltering exports. Last week Beijing cut interest rates by the most in 11 years and unveiled a $586 billion stimulus plan to keep the economy growing in the midst of a global recession.
Over the past two months, however, there has been a rapid deterioration in China’s economic situation. Chinese manufacturing in October contracted by the most on record as demand from the US, Europe, and Japan dropped rapidly. China’s State Information Center, a government think-tank, forecasts that the annual growth would slow to 8 percent this quarter from 9 percent in the third quarter, a rapid cooling from double-digit rates recorded in the past five years. The World Bank just cut its growth forecast for China during 2009 to 7.5 percent.
Over the weekend, the government news agency reported that on Saturday President Hu warned the Politburo that China’s competitiveness and trade are being threatened by the global economic downturn. This announcement suggests that Chinese leadership does not foresee a quick end to the economic downturn and worsening conditions ahead.