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Export recovery to take time
By Sean Maguire |
August 6, 2009, Thursday
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Print Edition
Print Edition
THE Chinese economy is faring better than most as it tries to navigate the turbulent waters of financial recovery.
China's gross domestic product (GDP) growth was 9 percent in the third quarter of last year, slumping to 6.8 percent in the fourth quarter and bottoming out at 6.1 percent in the first quarter of 2009; the second-quarter results have shown marked improvement, coming in at 7.9 percent, tantalizingly close to the magic figure of 8 percent.
Yet despite this Lazarus-like resurrection, there is some difficulty in getting a firm grip on the direction that China's economy is heading.
In line with expectations, the export sector has performed in a comparatively lackluster way, but the domestic economy has out-performed most observers' predictions by a wide margin on the back of the huge (US$600 billion) government stimulus package.
The question is, how will the Chinese economy fare with the export sector still tied to a moribund world economy?
China's expansionary fiscal and monetary policy decisions have sustained a very respectable level of growth. The bulk of the US$600 billion package has been centered on infrastructure-orientated projects.
Government-influenced spending makes up only a third of domestic demand and while market-based investment remains weak, particularly in export-oriented manufacturing (textiles, clothing, furniture, computers and IT), consumption will stay low.
Export volumes have remained weak and they were still down an estimated 20 percent on a year ago in April-May this year. In fact, Chinese exports dropped by more than a quarter in February from a year ago ?? down 25.7 percent to US$64.09 billion compared to the same month a year ago.
The short and mid-term forecasts are not good, reflecting subdued global expectations regarding profits, spare capacity and inventory, so it's going to be a long haul.
China's growth is tied to the health of the world economy. Real and sustained recovery will come only when there is a rebound in the export market, but this is going to take time.
Though this will be a relatively good year for growth, now as much as ever the Chinese government is aware of the extent to which the economic health of the country is tied to that of the global economic community.
(The author is counsel of AllBright Law Offices in Shanghai. The views expressed are his own. His email: sbmaguire@allbrightlaw.com.)
China's gross domestic product (GDP) growth was 9 percent in the third quarter of last year, slumping to 6.8 percent in the fourth quarter and bottoming out at 6.1 percent in the first quarter of 2009; the second-quarter results have shown marked improvement, coming in at 7.9 percent, tantalizingly close to the magic figure of 8 percent.
Yet despite this Lazarus-like resurrection, there is some difficulty in getting a firm grip on the direction that China's economy is heading.
In line with expectations, the export sector has performed in a comparatively lackluster way, but the domestic economy has out-performed most observers' predictions by a wide margin on the back of the huge (US$600 billion) government stimulus package.
The question is, how will the Chinese economy fare with the export sector still tied to a moribund world economy?
China's expansionary fiscal and monetary policy decisions have sustained a very respectable level of growth. The bulk of the US$600 billion package has been centered on infrastructure-orientated projects.
Government-influenced spending makes up only a third of domestic demand and while market-based investment remains weak, particularly in export-oriented manufacturing (textiles, clothing, furniture, computers and IT), consumption will stay low.
Export volumes have remained weak and they were still down an estimated 20 percent on a year ago in April-May this year. In fact, Chinese exports dropped by more than a quarter in February from a year ago ?? down 25.7 percent to US$64.09 billion compared to the same month a year ago.
The short and mid-term forecasts are not good, reflecting subdued global expectations regarding profits, spare capacity and inventory, so it's going to be a long haul.
China's growth is tied to the health of the world economy. Real and sustained recovery will come only when there is a rebound in the export market, but this is going to take time.
Though this will be a relatively good year for growth, now as much as ever the Chinese government is aware of the extent to which the economic health of the country is tied to that of the global economic community.
(The author is counsel of AllBright Law Offices in Shanghai. The views expressed are his own. His email: sbmaguire@allbrightlaw.com.)
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