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23 Sep, 2012

China Voice: Is Chinese economy sliding into dangerous position?

BEIJING, Sept. 22 (Xinhua) — In the past few weeks, there has been growing debate at home and abroad about China and its economic growth, with rhetoric speculating about an imminent economic blowout in the world’s second-largest economy.

It’s interesting to observe the difference between what pessimists predict about China’s economy and what’s actually going on in the country. In the eyes of bearish economists, China seems to be the worst-performing economy and is in trouble with nightmares to come, but in fact, it is still the fastest-growing economy among the Group-of-20 members, with an economic growth rate of 7.8 percent in the first half of this year.

Such a divergence of perception comes at a time when the Communist Party of China is facing up to a number of other sensitive issues to prepare for its 18th National Congress.

Naysayers may find some support for their argument in the latest macro economic figures released by Chinese officials on investment, consumption and export in August, with these suggesting economic downward pressure is increasing in the third quarter.

Other indicators, such as the manufacturing Purchasing Managers’ Index and electricity consumption, also indicate China’s economy is suffering a downturn due to slack external and domestic demand, making pessimists worry about whether the country can meet its annual economic growth target of 7.5 percent this year.

As a result, foreign and Chinese investment banks including Goldman Sachs, Barclays Bank, Morgan Stanley, ABN Amro Bank, Macquarie and China International Capital Corporation Limited have lowered their prediction of China’s economic growth this year.

Jim O’Neil, chairman of Goldman Sachs Asset Management, and the economic expert who came up with the term “BRIC” to represent the four fast-growing economies of Brazil, Russia, India and China, argued last month that the slowdown in developing behemoths like China and the rest of the BRIC bloc is more worrying than the eurozone crisis.

Is China’s economy really sliding into a dangerous zone or so-called “hard landing” as some forecast?

Presumably, such a pessimistic prediction is based on two cyclical and structural issues.

First, external demand for Chinese goods, which is closely linked to world economic cycles, will be further crippled by the ongoing eurozone debt crisis and the fragile economic recovery in developed countries, particularly with the United States facing its so-called “fiscal cliff” at this year end, driven up by its deficit-reduction measures.

The second assumption posits that China’s domestic demand will shrink further in a dip lasting for quite a while due to the country’s economic transition, with limited room for policymakers to take bold measures to stimulate the economy.

As the U.S. Federal Reserve announced a third round of quantitative easing this month, while a verdict handed down by German Constitutional Court cleared uncertainty surrounding the launch of the European Stability Mechanism, external risks facing China are expected to stabilize, which will falsify the first hypothesis for China’s “hard landing.”

Indeed, China’s economy is going through a tough time now following an average of almost two-digit annual growth over the past three decades, with its economic rise slowing for nine consecutive quarters after its GDP growth spiked to 11.9 percent in the first quarter of 2010.

Nonetheless, it is rash to conclude that China’s economy is in deep recession henceforth.

Compared with other major economies, China’s 7.6-percent GDP growth in the second quarter is enviable, even if its economic growth slows to between 7.0 percent and 7.5 percent in the third quarter, given its size as the world’s second-largest economy.

The current slowdown in China is cyclical on one hand, over falling external demand from Europe and the United States, as well as the global economic downturn, but structural on the other, as the Chinese government tightened regulation of the property sector and initiated other measures to rebalance its economy.

Yet, China has more firepower in its policy ammunition to spur up economic growth than European countries and the United States.

The more pivotal question now is how the Chinese government can maintain a balance between stabilizing short-term growth and leaving room for sustainable and more healthy development in the long run after policymakers took measures to boost foreign trade and approved massive infrastructure investment plans worth more than 1 trillion yuan (158 billion U.S. dollars).

Besides, the Chinese government is aiming to increase domestic retail sales by 15 percent annually to reach 32 trillion yuan by 2015.

The above measures are expected to stabilize China’s investment, export and consumption, thus making the second forecast unrealistic.

As the world continues to struggle through a global financial crisis that began in 2008, there is no need to fuss about an economic slowdown in China, where the light can be seen at the end of the dark tunnel. What we need now is just a little more confidence and patience.


Xinhua Insight: Is China losing glamour for foreign investment?

BEIJING, Sept. 21 (Xinhua) – China has been an ideal destination for foreign investment for decades. However, when foreign direct investment (FDI) into the country fell amid the global economic slowdown, some wonder if China is losing its glamour.

Latest statistics show the total FDI inflow for the first eight months this year dropped 3.4 percent to 74.99 billion U.S. dollars, which may fuel the worries, or even allegations against China’s environment for foreign investment. Full story

China’s 2012 GDP to grow 7.7-7.8 pct: researcher

BEIJING, Sept. 15 (Xinhua) — The Chinese economy will expand between 7.7 percent and 7.8 percent in 2012, surpassing the 7.5 percent growth target set earlier this year, a researcher from the country’s top think tank said.

“Policymakers have taken into account the changes in the domestic and external environments when setting the growth target earlier this year,” said Fan Jianping, director of the Economic Projection Department with the State Information Center, China’s top think tank, in a recent interview with Xinhua. Full story

QE3 not to push up the housing price in China: ABN AMRO

HONG KONG, Sept. 18 (Xinhua) — The US Federal Reserve’s latest QE3 announcement will not push up the housing price in China’s mainland, an economist of ABN AMRO said here on Tuesday.

QE3 will promote more capital flow to go to risky assets such as equity market while the attractiveness of government bonds will decline, Maritza Cabezas, senior economist of ABN AMRO Private Banking, said at a press conference. Full story

Editor: Tang Danlu