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China's economy shows good signs

May 7, 2009, Thursday | Print Edition

NONE of the recent economic numbers in China are shockingly good, but in many cases they either have exceeded expectations, or are better than in the preceding months.

While January and February remained generally weak, March data showed signs of growth, fueling talk of "green shoots" and a "V-shaped" recovery.

In the first quarter, China's GDP expanded 6.1 percent year-on-year, according to the National Bureau of Statistics (NBS). That was 0.7 percent lower than the 6.8 percent growth in the fourth quarter, and 4.5 percent less than the first quarter of 2008.

But recent data indicate the economy strengthened in March. One of the key numbers is the 28.6 percent year-on-year rise in fixed-asset investment in March, up from 26.5 percent in January and February, and from 23 percent in the fourth quarter last year.

Bank lending is robust, following a government move in late 2008 to raise limits on lending. Bank lending reached US$277 billion in March, setting a single-month record, and US$673 billion in the first quarter of the year.

Exports fell 17.1 percent in March compared with the previous March, but even that figure was an improvement from the 21.6 percent fall in January and February combined.

Other indicators, including total residential property sales and retail sales, are also showing signs of improvement. "Retail sales have been holding up well in general," writes Paul French, manager of Access Asia, a Shanghai-based market research company that specializes in retail analysis.

According to Access Asia, several factors are supporting retail: the fact that few Chinese consumers are burdened by debt, the limited number of white-collar lay-offs and in particular, the solid income growth during the past decade.

China's US$586 billion stimulus package, much of which is being poured into infrastructure, has drawn praise from both analysts and the business community.

Not everyone thinks that the curve is going up so definitively.

On April 7, Louis Kuijs, senior economist at the World Bank, said: "I personally think it's too early to start to see a sustained, rapid recovery in China very subdued ... We think that China needs more consumption-oriented fiscal measures, and we think China has room to move in that direction."

Stephen Green, head of China Research at Standard Chartered Bank, said: "(China's) Industries like transportation and equipment manufacturing are the main beneficiaries of government investment, whereas SMEs are on a footing that is still quite worrisome."

At some point, exports will have to pick up and the country will need to wean itself from the government's fiscal and monetary stimulus measures.

(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved. Shanghai Daily condensed the article.)

China Knowledge


 

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