China's Private Sector is 'Nervous' the Journal's Brown Tells CNBC
NEW YORK (TheStreet) --China is back in focus as second quarter GDP figures came in better than expected. However, the continued shrinking private investment growth tells a different story about the Chinese economy, Ken Brown of the Wall Street Journal said on CNBC's "Closing Bell" Friday afternoon.
"It's important what happens in China, its super important. Broadly, you have a government spending, and all the things that everyone wanted to grow like services and private industry are still shrinking," Brown explained.
Although the recent Chinese mission has been to turn away from an economy that has historically been production-oriented, to one that is now consumer-oriented, the shift just does not seem to be taking place, he noted.
"These numbers were a little bit scary because what we've seen in the past is China's economic growth based on a big looming credit, the governments and banks have been lending a lot of money, and what we saw this time was a halt. Not particularly in the lending, but in the spending, particularly by private businesses and the service areas. Exactly the areas you'd hope to see growth," Brown said.
Moreover, "there are shifts but it's very slow," he added.
As to why it does not seem to be happening? Brown believes the answer is rooted in the country's private businesses.
"When owning a private business, it's been a one-way thought, which is I'm going to invest more and grow, because I'm in the second biggest economy in the world growing 10% a year. Now the Chinese are not investing, and that's what's making people worry," Brown explained.
In terms of the impact a failed shift in economic principle may mean to the international markets, Brown said to take note of the the change in real estate.
"You read all the analysts and economists reports in Hong Kong and China, and everyone's bullish because their lives depend on China, so there's not a lot of critical analysis. For example, real estate has kept things going in the past, but now you have super high prices in all the big cities. Things are just simply not being worked through and now you're seeing the private sector get nervous," Brown concluded.