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Wan LixinOpinion deputy editor of Shanghai Daily
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Bout of optimism
By Wang Yanlin |
June 29, 2009, Monday
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Print Edition
Print Edition
SEVERAL banks, fund managers and economists have raised their growth forecasts for China after recent signs that the government's hefty stimulus package is beginning to pay off in housing, consumer spending and factory production.
"I believe China has been recovering and its pace of recovery will be faster than other countries," said George Soros, the global currency speculator, fund manager and philanthropist, during a recent visit to Shanghai.
Still, a persistent slump in exports, the traditional engine of growth for the Chinese economy, remains a stumbling block to a sustainable recovery.
Last Tuesday, Standard Chartered Bank Ltd upgraded its forecast for China's 2009 gross domestic product growth to 7.4 percent from 6.8 percent and said the growth in 2010 may settle at 8 percent.
On June 19, Barclays Plc said the signs of China's economic recovery have become more evident and raised its forecast for this year's growth to 7.8 percent from 7.2 percent. It forecast 9.6 percent growth in 2010, an increase from its previous forecast of 9 percent.
Similarly, the World Bank lifted its estimate for GDP growth to 7.2 percent from 6.5 percent in March and said the pace of growth may accelerate to 7.7 percent in 2010.
Leadership role
The optimism comes as many developed countries, including Japan, the United States and Germany, remain mired in recession triggered by the global financial crisis.
Soros said China may become the first country to ride out the global recession. He urged the nation to take a leadership role in the reconstruction of the international economic system.
Ardo Hansson, lead economist for China at the World Bank, said growth in China should remain "respectable" this year and next.
"The 4 trillion yuan (US$586 billion) fiscal stimulus is centered on infrastructure, while the easing of monetary policy has led to a surge in new bank lending," Hansson said. "Government-influenced investment soared, consumption held up well and positive signs have emerged in the real estate sector."
Louis Kuijs, another economist at the World Bank, even said it won't be necessary and not appropriate for China to boost its stimulus this year.
"The fiscal deficit is on course to be significantly higher than budgeted this year and additional stimulus now will reduce the room for stimulus in 2010," said Kuijs.
Stephen Green, a Standard Chartered economist, said there were two major reasons behind the increase in his forecast for China's economy: the effects of the stimulus package and a surprising rebound in the housing market.
"It is the mechanical result of the vast amounts of bank-financed infrastructure projects coming on line," Green said. "These have clearly been front-loaded, but new projects continue to start as local governments get their approvals and capital in place," he added.
"The thing that has surprised just about everyone is the sustained improvement in the residential housing market. Overall economic growth has picked up, and we see no significant bumps in the road this year."
The key economic data for May backed the optimism.
China's retail sales and industrial production both posted better-than-expected growth last month. Retail consumption in China jumped 15.2 percent on an annual basis to 1 trillion yuan, accelerating from the increases of 14.8 percent in April and 14.7 percent in March.
May industrial output gained 8.9 percent, compared with 7.3 percent in April and 8.3 percent in March.
Urban fixed-asset investment also surprised many analysts, surging 32.9 percent in the first five months of this year. That was the biggest gain in five years, following an expansion of 30.5 percent in the January-April period.
The trade sector, which remains stubbornly poor as overseas markets slash purchases from China, was the only major negative spot in the May figures.
Weak exports
China's exports tumbled 26.4 percent from a year earlier to US$88.8 billion, a record low for at least 14 years. Imports sank 25.2 percent to US$75.3 billion.
Trade volume fell 25.9 percent on an annual basis, its seventh consecutive fall. In the first five months of this year, China's trade volume dived 24.7 percent year on year.
Vice Premier Li Keqiang said last week that China may miss its growth target for foreign trade this year, which was set at 8 percent. It was in sharp contrast to a growth rate of 17.8 percent that China still managed to achieve last year.
"Export growth is unlikely to rebound in the short run and a rapid contraction in foreign demand is posing an unprecedented challenge to the nation's economy," Li told a conference in Beijing.
To boost trade and help struggling exporters, China has announced it will remove or reduce export taxes on almost 100 varieties of goods ranging from wheat, rice and soybeans to fertilizers and metals. The changes will take effect next month. China has increased export tax rebates seven times since last August.
However, the tough global economic climate may curb China's bid to boost trade.
"A rapid global recovery seems unlikely and uncertainty remains," said the World Bank, which predicted the global economy may contract 2.9 percent this year. That was lower than an earlier forecast of a 1.7 percent decrease. It also said global trade may shrink 9.7 percent this year while total GDP of high-income nations may sink 4.2 percent.
With more subdued global demand and slower exports, the World Bank said China should seek more of its growth from domestic consumption.
"The transition to a more consumption-led, service sector-oriented, and labor-intensive growth requires policy adjustments," the World Bank pointed out.
It suggested that China should channel resources to sectors that will prosper in the new economic climate.
"I believe China has been recovering and its pace of recovery will be faster than other countries," said George Soros, the global currency speculator, fund manager and philanthropist, during a recent visit to Shanghai.
Still, a persistent slump in exports, the traditional engine of growth for the Chinese economy, remains a stumbling block to a sustainable recovery.
Last Tuesday, Standard Chartered Bank Ltd upgraded its forecast for China's 2009 gross domestic product growth to 7.4 percent from 6.8 percent and said the growth in 2010 may settle at 8 percent.
On June 19, Barclays Plc said the signs of China's economic recovery have become more evident and raised its forecast for this year's growth to 7.8 percent from 7.2 percent. It forecast 9.6 percent growth in 2010, an increase from its previous forecast of 9 percent.
Similarly, the World Bank lifted its estimate for GDP growth to 7.2 percent from 6.5 percent in March and said the pace of growth may accelerate to 7.7 percent in 2010.
Leadership role
The optimism comes as many developed countries, including Japan, the United States and Germany, remain mired in recession triggered by the global financial crisis.
Soros said China may become the first country to ride out the global recession. He urged the nation to take a leadership role in the reconstruction of the international economic system.
Ardo Hansson, lead economist for China at the World Bank, said growth in China should remain "respectable" this year and next.
"The 4 trillion yuan (US$586 billion) fiscal stimulus is centered on infrastructure, while the easing of monetary policy has led to a surge in new bank lending," Hansson said. "Government-influenced investment soared, consumption held up well and positive signs have emerged in the real estate sector."
Louis Kuijs, another economist at the World Bank, even said it won't be necessary and not appropriate for China to boost its stimulus this year.
"The fiscal deficit is on course to be significantly higher than budgeted this year and additional stimulus now will reduce the room for stimulus in 2010," said Kuijs.
Stephen Green, a Standard Chartered economist, said there were two major reasons behind the increase in his forecast for China's economy: the effects of the stimulus package and a surprising rebound in the housing market.
"It is the mechanical result of the vast amounts of bank-financed infrastructure projects coming on line," Green said. "These have clearly been front-loaded, but new projects continue to start as local governments get their approvals and capital in place," he added.
"The thing that has surprised just about everyone is the sustained improvement in the residential housing market. Overall economic growth has picked up, and we see no significant bumps in the road this year."
The key economic data for May backed the optimism.
China's retail sales and industrial production both posted better-than-expected growth last month. Retail consumption in China jumped 15.2 percent on an annual basis to 1 trillion yuan, accelerating from the increases of 14.8 percent in April and 14.7 percent in March.
May industrial output gained 8.9 percent, compared with 7.3 percent in April and 8.3 percent in March.
Urban fixed-asset investment also surprised many analysts, surging 32.9 percent in the first five months of this year. That was the biggest gain in five years, following an expansion of 30.5 percent in the January-April period.
The trade sector, which remains stubbornly poor as overseas markets slash purchases from China, was the only major negative spot in the May figures.
Weak exports
China's exports tumbled 26.4 percent from a year earlier to US$88.8 billion, a record low for at least 14 years. Imports sank 25.2 percent to US$75.3 billion.
Trade volume fell 25.9 percent on an annual basis, its seventh consecutive fall. In the first five months of this year, China's trade volume dived 24.7 percent year on year.
Vice Premier Li Keqiang said last week that China may miss its growth target for foreign trade this year, which was set at 8 percent. It was in sharp contrast to a growth rate of 17.8 percent that China still managed to achieve last year.
"Export growth is unlikely to rebound in the short run and a rapid contraction in foreign demand is posing an unprecedented challenge to the nation's economy," Li told a conference in Beijing.
To boost trade and help struggling exporters, China has announced it will remove or reduce export taxes on almost 100 varieties of goods ranging from wheat, rice and soybeans to fertilizers and metals. The changes will take effect next month. China has increased export tax rebates seven times since last August.
However, the tough global economic climate may curb China's bid to boost trade.
"A rapid global recovery seems unlikely and uncertainty remains," said the World Bank, which predicted the global economy may contract 2.9 percent this year. That was lower than an earlier forecast of a 1.7 percent decrease. It also said global trade may shrink 9.7 percent this year while total GDP of high-income nations may sink 4.2 percent.
With more subdued global demand and slower exports, the World Bank said China should seek more of its growth from domestic consumption.
"The transition to a more consumption-led, service sector-oriented, and labor-intensive growth requires policy adjustments," the World Bank pointed out.
It suggested that China should channel resources to sectors that will prosper in the new economic climate.
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