It is difficult to be an optimist about the mainland’s economic prospects next year, amid the deepening gloom of the global financial crisis.
The November economic data has raised serious fears of deflation in the world’s fourth largest economy. The sudden fall in exports, the first in almost seven years, and an even sharper fall of 17.9 per cent in imports, the biggest since the early 1990s, have revealed that the impact of the financial crisis on the mainland economy has been far greater and faster than officials and independent economists had expected.
The producer price index grew just 2 per cent last month, compared with 6.6 per cent in October, while consumer inflation dived to a 22-month low of 2.4 per cent.
Liu Mingkang, chairman of the China Banking Regulatory Commission, told a forum in Beijing over the weekend that the mainland economy was “very likely to slide into deflation mode”, expecting producer inflation to continue tumbling in a dramatic fashion this month.
He expected the mainland’s economic recovery to take a U-shape instead of a V-shape, indicating that the economy would not bottom out any time soon.
Mr. Liu is among the first senior mainland officials to publicly strike a gloomier note over its growth prospects, signalling deepening concerns of the mainland leadership. Until recently officials have always tried to put a positive spin on it in public.
Independent economists such as those of Goldman Sachs have cut the mainland’s growth forecast to 6 per cent. Economists and mainland officials have long agreed that a growth rate of 8 per cent is the minimum for Beijing to create enough jobs for at least 20 million new job seekers each year.
There is little doubt that the mainland’s short-term economic outlook, for the last quarter of this year and the first quarter of next year, will most likely get uglier.
But there are also reasons to believe that the 4 trillion yuan (HK$4.5 trillion) stimulus package and other efforts, including the 30 new measures released yesterday, could work well and propel the headline growth figures above 8 per cent in 2009 and 2010.
While the stimulus measures will begin to kick in only by the second quarter of next year, the impact can be expected to be massive, swift and effective.
For anyone who has recently visited a mainland city, one is likely to find that local officials are talking about nothing but the spending spree on infrastructure - new expressways, railways, power plants - and cutting taxes for businesses.
Recently this writer witnessed the tremendous scale of local government spending in Kunming, Yunnan province, where the municipal authorities are undertaking construction of 18 highway overpasses, making it a nightmarish journey for anyone wishing to drive into or out of the city every day.
While the media focus is on the 4 trillion yuan package, it is just one part of the total fixed-asset investment, which is expected to grow to 20 trillion yuan next year, up from 17 trillion yuan this year.
With exports falling, the central government’s top priority is to boost domestic consumption.
One of its most effective measures is to tap the vast rural markets, with an ambitious scheme launched last month to encourage farmers to buy electrical home appliances with government subsidies.
The government is also expected to roll out other measures, including cutting business tax for retailers and wholesalers and increasing the personal income tax threshold to encourage spending. More mainland cities are also likely to dole out cash directly to the poor and disadvantaged.
One more important but less talked-about reason is that mainland officials are both politically and financially motivated to do whatever they can to ensure a strong growth rate for next year - the 60th anniversary of the founding of the People’s Republic.
And this may sound cynical, but the spending spree will no doubt allow many corrupt local officials to skim for personal gain, and for this reason they see it as being in their interest to see the projects begin as soon as possible.
A more serious note is that for top mainland leaders, social stability and their own jobs will be in jeopardy if the economy dips below 8 per cent next year.
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Expect growth to bounce back in 2009 and ‘10
Wang Xiangwei
15 December 2008
It is difficult to be an optimist about the mainland’s economic prospects next year, amid the deepening gloom of the global financial crisis.
The November economic data has raised serious fears of deflation in the world’s fourth largest economy. The sudden fall in exports, the first in almost seven years, and an even sharper fall of 17.9 per cent in imports, the biggest since the early 1990s, have revealed that the impact of the financial crisis on the mainland economy has been far greater and faster than officials and independent economists had expected.
The producer price index grew just 2 per cent last month, compared with 6.6 per cent in October, while consumer inflation dived to a 22-month low of 2.4 per cent.
Liu Mingkang, chairman of the China Banking Regulatory Commission, told a forum in Beijing over the weekend that the mainland economy was “very likely to slide into deflation mode”, expecting producer inflation to continue tumbling in a dramatic fashion this month.
He expected the mainland’s economic recovery to take a U-shape instead of a V-shape, indicating that the economy would not bottom out any time soon.
Mr. Liu is among the first senior mainland officials to publicly strike a gloomier note over its growth prospects, signalling deepening concerns of the mainland leadership. Until recently officials have always tried to put a positive spin on it in public.
Independent economists such as those of Goldman Sachs have cut the mainland’s growth forecast to 6 per cent. Economists and mainland officials have long agreed that a growth rate of 8 per cent is the minimum for Beijing to create enough jobs for at least 20 million new job seekers each year.
There is little doubt that the mainland’s short-term economic outlook, for the last quarter of this year and the first quarter of next year, will most likely get uglier.
But there are also reasons to believe that the 4 trillion yuan (HK$4.5 trillion) stimulus package and other efforts, including the 30 new measures released yesterday, could work well and propel the headline growth figures above 8 per cent in 2009 and 2010.
While the stimulus measures will begin to kick in only by the second quarter of next year, the impact can be expected to be massive, swift and effective.
For anyone who has recently visited a mainland city, one is likely to find that local officials are talking about nothing but the spending spree on infrastructure - new expressways, railways, power plants - and cutting taxes for businesses.
Recently this writer witnessed the tremendous scale of local government spending in Kunming, Yunnan province, where the municipal authorities are undertaking construction of 18 highway overpasses, making it a nightmarish journey for anyone wishing to drive into or out of the city every day.
While the media focus is on the 4 trillion yuan package, it is just one part of the total fixed-asset investment, which is expected to grow to 20 trillion yuan next year, up from 17 trillion yuan this year.
With exports falling, the central government’s top priority is to boost domestic consumption.
One of its most effective measures is to tap the vast rural markets, with an ambitious scheme launched last month to encourage farmers to buy electrical home appliances with government subsidies.
The government is also expected to roll out other measures, including cutting business tax for retailers and wholesalers and increasing the personal income tax threshold to encourage spending. More mainland cities are also likely to dole out cash directly to the poor and disadvantaged.
One more important but less talked-about reason is that mainland officials are both politically and financially motivated to do whatever they can to ensure a strong growth rate for next year - the 60th anniversary of the founding of the People’s Republic.
And this may sound cynical, but the spending spree will no doubt allow many corrupt local officials to skim for personal gain, and for this reason they see it as being in their interest to see the projects begin as soon as possible.
A more serious note is that for top mainland leaders, social stability and their own jobs will be in jeopardy if the economy dips below 8 per cent next year.
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