According to Reuters, China's central government will spend 70 billion yuan ($10.3 billion) in the third tranche of its stimulus package, falling short of market expectations. Since the Chinese stock market is highly sensitive to government action, this failure to live up to expectations will undoubtedly have a negative impact on the Chinese market. With the combination of swine flu, this should provoke a sell off.
Although Goldman Sachs (GS) economists keep cranking out bullish forecasts, they may not be correct. Remember these are the same people who brought you $200 oil and a financial meltdown. The only reason they remain solvent at all is because the US taxpayer has backed AIG derivatives, which should have been worthless and put Goldman under.
According to Jonathan Anderson, an economist at UBS, another bank known for its performance, the Chinese economy will be revived because of the recent rise in real property prices and that the rise could be as important at the fiscal stimulus in determining China’s fate. The World Bank disagrees. According to the World Bank, real estate will remain weak for much of 2009. This is also important because local governments derive much of their revenue from sales of real estate for development. It is also important because the central government has passed on much of the responsibility for the stimulus and health care reforms to regional governments. If they don’t have the cash, neither the stimulus nor the reforms will occur. This debunks two of the major premises supported by Jim O’Neill, Goldman’s chief Asia economist.
In contrast to Goldman, Wu Dongying, director of Baosteel's Economics and Management Research Institute, said the Chinese steel industry "will remain in a valley and prices will fluctuate at a low level" (FT) Also according to Xu Zhongbo, chief executive of Beijing Metal Consulting, 2009 "could be the worst year in history for the Chinese steel industry because we have [a] big overcapacity". “Ou Gouli, director of the School of Economics and Management at Beijing Jiaotong University, told the conference: "Steel prices in China are unlikely to bottom until the end of this year or early next year." (Financial Times April 22, 2009).
Deutsche Bank's (DB) Chief Economist for Greater China, Jun Ma, probably has a more accurate view. According to Ma the economy will follow a “W” shape. As the tidal wave of bank lending slows so will the recovery and the next leg is downward which will take about three months to be felt and that the economy will take another 18 months before it enters a new growth cycle.
