国际英语新闻:Disappointing Report on China's Economy Shakes Markets

Critics contend such reforms are a dead end when it comes to the long-term health of the Chinese economy.

"If [policymakers in] China continue the mindset of making state-owned enterprises bigger and stronger, such state-owned enterprises will still be short of efficiency and fair play,” said Hu Xingdou, an economics professor at Beijing University of Technology.

What is more important is to attract more private investment and encourage the privatization of state-owned enterprises, he said.

Hu said efforts to prop up the market before this week’s massive military parade in Beijing could only fuel unrealistic expectations among investors for a government bailout. Such tactics also violate free-market mechanisms, he said.

"Between the government [intervention] and the market [reform], China on the one hand allows market [forces] to prevail, but on the other hand, it has overdone it when it comes to intervention," Hu said.

Liao Qun, chief economist at China CITIC Bank, said that while China's manufacturing industry was performing poorly, services were continuing to do better than anticipated. He said he thought it would take some time for the overall economy to rebound.

“In the short term, the government still needs to expand its pace of monetary easing and the use of fiscal stimulus to help stabilize demand,” Liao said.

Growth forecasts cut

The turmoil in China’s stock market and devaluation of its currency led economists at Goldman Sachs to slash their forecasts for China for the next three years, saying that by 2018 China’s economic growth  was expected to slow to 5.8 percent.

Goldman Sachs expects growth of 6.4 percent and 6.1 percent for China in 2016 and 2017.

According to the Reuters news agency, economists at ANZ also were rethinking their forecasts. Based on the manufacturing data released Tuesday, economists said they expected China’s economy to grow by 6.4 percent in the third quarter but to rebound with policy support to 6.8 percent in the fourth  quarter.

Some said it wasn't fair to blame market volatility entirely on China. Joseph Minarik, research director for the Committee for Economic Development, a business-oriented public policy group in Washington, said persistent problems in Europe have been largely ignored, even as the U.S. economy settles into a very slow recovery.

“Probably the headline discussion right now is about China. ...  That is obscuring to some extent the enduring problems that we have in Europe,” Minarik said.

More important to global markets, said strategist Stephen Wood of Russell Investments, is the U.S. Federal Reserve’s next move. 

“What is the Fed going to do with interest rates?" he asked. "Will it be a September hike?  Will it be October?  End of the year?  So I think it is the Federal Reserve story and what that means to equity markets, bond markets.”

Those are questions the U.S. central bank must grapple with at its next meeting, September 17.  Many analysts had predicted a rate hike in September, but given the recent volatility, some economists believe the odds are higher that the Fed could delay its decision until later this year.