China’s Economy Stable but Strong Growth Unlikely Soon

The World Bank released the China Quarterly Update, June 2009 recently. This report offers an in-depth analysis of the current state of the Chinese economy. Some highlights from this report are presented below:

• China’s economy declined in the first part 0f 2009 but thanks to the infrastructure-focused “RMB 4 Trillion” stimulus plan announced by the government, the economy is growing respectably
• The stimulus plan has increased lending by banks and government-influenced investment has soared

• The economy is stable since domestic consumption has held up well
• Export has decreased considerably due to fall in overseas demand for Chinese goods

Source: China Quarterly Update, June 2009, The World Bank

• Import volumes has rebounded in second quarter this year due to rise in raw material imports
• The real estate market is unlikely to have strong growth as before
• World Banks projects a GDP growth of 7.2% in 2009 and 7.7% in 2010
• Additional stimulus measures are not necessary
• Chinese economy needs growth in domestic demand
• Foreign exchange reserves accumulation has slowed in the past 9 months. In 2009Q1 it grew $8B compared to $154B in 2008Q1
• Despite rhetoric by senior Chinese officials, China continues to be a major buyer of US treasuries
• As the Shanghai Composite Index has risen over 50% since the end of 2008, trading volume has increased significantly
• The high pace of bank lending for projects is expected to slow down
• “It may take time before the RMB becomes a major reserve currency”

For the full report, click China Quarterly Update, June 2009

Comments

[Drew Arnold:]

Seeing that consumer spending held up well gives a lot of hope to the "China leading the global recovery" story, showing that the Chinese stimulus package isn't the only contributor to China's GDP growth. Government spending is there, investment is there (however "government influenced"), and consumption is there. In fact, the report cited exports as being the main and seemingly only significant drag on GDP. In contrast to the American consumer, which is deleveraging and spending less, the Chinese consumer is seemingly able to spend its way through the slowdown as a result of its traditionally high savings rate. This is great news for the rest of the world, which needs to see demand coming from somewhere. China seems like it will be able to continue providing that demand, and not just from government stimulus spending, but from consumer spending as well.

Jun 23 01:55 PM

[Tom E.:]

China wants their currency to become a major reserve currency and they want to continue to rig it for trade advantage.

I don't think they are going to have a lot of luck with this one sided plan.

Jun 24 12:03 AM

[coreopsis:]

Great comment!


On Jun 24 12:03 AM Tom E. wrote:

> US wants their currency to become a major reserve currency and
> they want to continue to rig it for trade advantage.
>
> I don't think they are going to have a lot of luck with this one
> sided plan.

Jun 24 09:04 AM

[Dave Wrixon:]

Great one sided perspective on the great plan.


On Jun 24 12:03 AM Tom E. wrote:

> China wants their currency to become a major reserve currency and
> they want to continue to rig it for trade advantage.
>
> I don't think they are going to have a lot of luck with this one
> sided plan.

Jun 25 05:05 AM