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Friday, 20 February 2009
It’s a Bit Early to Say China’s on the Rebound
Those hoping for China to make a quick exit from the ongoing international economic slump might do well to read an article publish 71 years ago by one Mao Zedong.
Those hoping for China to make a quick exit from the ongoing international economic slump might do well to read an article publish 71 years ago by one Mao Zedong. In On Protracted War, the future Great Steersman speculated on the length of the Anti-Japanese struggle, and warned his compatriots to be fully prepared for protracted war. The present situation is perhaps not so dire, but it does not look to be over any time soon.
Recently reported statistics for January contain both good and bad news, but generally credit scale and stock market figures show people’s increasing confidence. China’s new lending reached 1.6 trillion yuan in January, a leap of 200% over the same month last year, as opposed to the new lending in the whole 2008, which stood at only 4.91 trillion yuan. Meanwhile China’s stock market has managed to rise from its sickbed. The Shanghai Composite Index, China’s benchmark index, has risen about 20% since the beginning of January is still showing some bounce.
The shadow of inflation, so dark less than a year ago, has completely vanished. China’s CPI grew 1% year on year in January, 0.2 percentage points lower than the growth in December 2008, and PPI in January was 3.3% down.
Leading indicators are also showing a positive side. In January, China’s Purchasing Manager Index grew 4.1 percentage points over December 2008 to 45.3%, the second straight month to see a rebound.
Analysts of the Chinese economy see stabilization and no serious deflation occurring in 2009 and cautiously guess that China has survived the worst time.
But it may be a bit early for optimism. Figures for import and export, accounting for 1/3 of China’s GDP, is still not so rosy. In January China’s exports reached $90.45 billion, down 17.5% over the same month last year, the lowest monthly export growth in the 13 years, and imports stood at $51.34 billion, 43.1% down year on year, close to a record decline.
The bleak international economic environment is the basic reason for China’s foreign trade troubles. Although China’s largest export destinations, the US and Europe, have launched stimulus packages, China will continue to see low exports as well as imports before US, European, and the rest of global consumption rebounds.
Li Jing, China Market chairman of JP Morgan Chase, believes the steep decline in China’s imports indicates a slowdown in China’s domestic investment and intermediate product demand, and means the export downturn will probably continue.
According to figures from China Customs, in January China’s total trade with the EU, US and Japan reached $27.93 billion, $22.25 billion, and $14.5 billion, respectively, sliding by 18.7%, 15.2%, and 28%, showing that, from China’s point of view, the EU and Japan have been more greatly influenced by the economic crisis as China’s export decline to these areas has been higher than that to the US.
Morgan Stanley chief China economist Wang Qing believes external demand decline will be extremely serious for at least the coming one or two quarters, and estimates China’s overall economy will continue to worsen before it starts to rebound.
Internal factors may also bring long-term challenge to the Chinese economy.
First, although China’s capital formation rate is quite high, its investment and financing efficiency are not. Incremental capital output ratio (incremental capital/ incremental GDP) , a key indicator for investment and financing efficiency, has grown year on year to 5 to 7, while in developed countries it is usually between 1 and 2.
Second, China faces heavy unemployment pressure. Finding jobs for 26 million migrant workers and 6 million new college graduates has overtaken economic development to become the government’s most important task in 2009. Unemployment will also affect China’s domestic consumption market, which is being promoted now, and could be crucial to the stability of the regime. Chinese leaders are likely to neglect details such as inefficient investment to solve this problem.
Drastic credit growth at the beginning of the year will also leave risks of credit shrinking later. Generally China’s monthly credit growth is higher at the beginning of the year and lower at the end of the year. If a credit boom in January triggers the government’s concerns, whether it will continue a loose credit policy is an unknown.
1 comment:
It’s a Bit Early to Say China’s on the Rebound
Niu Zhijing, Shanghai
12 February 2009
Those hoping for China to make a quick exit from the ongoing international economic slump might do well to read an article publish 71 years ago by one Mao Zedong. In On Protracted War, the future Great Steersman speculated on the length of the Anti-Japanese struggle, and warned his compatriots to be fully prepared for protracted war. The present situation is perhaps not so dire, but it does not look to be over any time soon.
Recently reported statistics for January contain both good and bad news, but generally credit scale and stock market figures show people’s increasing confidence. China’s new lending reached 1.6 trillion yuan in January, a leap of 200% over the same month last year, as opposed to the new lending in the whole 2008, which stood at only 4.91 trillion yuan. Meanwhile China’s stock market has managed to rise from its sickbed. The Shanghai Composite Index, China’s benchmark index, has risen about 20% since the beginning of January is still showing some bounce.
The shadow of inflation, so dark less than a year ago, has completely vanished. China’s CPI grew 1% year on year in January, 0.2 percentage points lower than the growth in December 2008, and PPI in January was 3.3% down.
Leading indicators are also showing a positive side. In January, China’s Purchasing Manager Index grew 4.1 percentage points over December 2008 to 45.3%, the second straight month to see a rebound.
Analysts of the Chinese economy see stabilization and no serious deflation occurring in 2009 and cautiously guess that China has survived the worst time.
But it may be a bit early for optimism. Figures for import and export, accounting for 1/3 of China’s GDP, is still not so rosy. In January China’s exports reached $90.45 billion, down 17.5% over the same month last year, the lowest monthly export growth in the 13 years, and imports stood at $51.34 billion, 43.1% down year on year, close to a record decline.
The bleak international economic environment is the basic reason for China’s foreign trade troubles. Although China’s largest export destinations, the US and Europe, have launched stimulus packages, China will continue to see low exports as well as imports before US, European, and the rest of global consumption rebounds.
Li Jing, China Market chairman of JP Morgan Chase, believes the steep decline in China’s imports indicates a slowdown in China’s domestic investment and intermediate product demand, and means the export downturn will probably continue.
According to figures from China Customs, in January China’s total trade with the EU, US and Japan reached $27.93 billion, $22.25 billion, and $14.5 billion, respectively, sliding by 18.7%, 15.2%, and 28%, showing that, from China’s point of view, the EU and Japan have been more greatly influenced by the economic crisis as China’s export decline to these areas has been higher than that to the US.
Morgan Stanley chief China economist Wang Qing believes external demand decline will be extremely serious for at least the coming one or two quarters, and estimates China’s overall economy will continue to worsen before it starts to rebound.
Internal factors may also bring long-term challenge to the Chinese economy.
First, although China’s capital formation rate is quite high, its investment and financing efficiency are not. Incremental capital output ratio (incremental capital/ incremental GDP) , a key indicator for investment and financing efficiency, has grown year on year to 5 to 7, while in developed countries it is usually between 1 and 2.
Second, China faces heavy unemployment pressure. Finding jobs for 26 million migrant workers and 6 million new college graduates has overtaken economic development to become the government’s most important task in 2009. Unemployment will also affect China’s domestic consumption market, which is being promoted now, and could be crucial to the stability of the regime. Chinese leaders are likely to neglect details such as inefficient investment to solve this problem.
Drastic credit growth at the beginning of the year will also leave risks of credit shrinking later. Generally China’s monthly credit growth is higher at the beginning of the year and lower at the end of the year. If a credit boom in January triggers the government’s concerns, whether it will continue a loose credit policy is an unknown.
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