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China Copes With Its Own Growing Pains

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Friday, 22 Jan 2010 01:17 PM Current | Bio | Archive

China's economic growth accelerated to 8.7 percent year-on-year in 2009, achieving the Chinese authorities’ full-year growth target of 8 percent and totaling 33.54 trillion yuan, which is about $4.91 trillion.

Yes, China is now definitively the third biggest economy in the world.

Nevertheless, to put this somewhat in context: The latest gross domestic product (GDP) estimates for 2009 by the International Monetary Fund (IMF) as of October 2009: The United States $14.26 trillion; Japan $5.04 trillion; Germany 3.23 trillion and the United Kingdom $2.19 trillion.

China’s population is estimated at 1.34 billion and represents roughly 19.67% of the population of the world.

The United States accounts for 308.4 million and represents 4.52% of the population in the world.

GDP growth rate in China was 10.7 percent year-on-year in the fourth quarter of 2009.

According to the Chinese National Bureau of Statistics (NBS), in 2009, the value-added of the primary sector topped 3.55 trillion yuan (US$520 billion), up 4.2 percent from 2008; the industrial sector stood at 15.70 trillion yuan (US$2.3 trillion), up 9.5 percent year-on-year; and the tertiary sector, the service sector, reported value-added totaling 14.29 trillion yuan (US$2.09 trillion), up 8.9 percent from 2008.

China's valued-added of industry rose 11 percent in 2009 from a year earlier.

Retail sales rose 16.9 percent year-on-year, while fixed-asset investment rose 30.1 percent.

The Chinese National Bureau of Statistics (NBS) didn't release respective contribution percentage of the export, consumption, and investment to the GDP growth due to some statistics reasons, but it promised to disclose the figure at the end of the month.

The NBS figures showed China's foreign trade totaled $2.2 trillion in 2009, down 13.9 percent from 2008.

Nevertheless, foreign trade began to increase since November, when the monthly figure rose 9.8 percent from 2008.

Figures from the People's Bank of China (PBOC), or the central bank, showed that China's new yuan-denominated lending in 2009 hit a record 9.59 trillion yuan (US$1.4 trillion), nearly double that of 2008.

Ma Jiantang, director of the National Bureau of Statistics (NBS) described the country's economic development last year as a "harvest," saying the newly released figures confirmed a V-shaped recovery of the economy from the world economic downturn.

Interestingly, Yu Yongding, a research fellow with Chinese Academy of Social Sciences, said that part of the government's stimulus measures did not serve a balanced economy and the government should focus more on structural adjustment.

Importantly, separate data show that consumer prices rose 1.9% year-on-year in December, a marked acceleration from November's reading of 0.6%.

Retail sales rose 17.5% year-on-year after the previous rise of 15.8%.
Industrial production slowed somewhat to positive 18.5% year-on-year after the previous rise of 19.2%.

Finally, fixed asset investment rose 30.5% year-on-year, below the consensus forecast of 31.5%.

HSBC expect inflation to move up to 3 percent by the middle of the year.

No doubt that People’s Bank of China (PBOC) will raise interest rates sooner rather than later.

Besides all that, vice minister of commerce Fu Ziying said: “As the foundation for global economic recovery is still not solid, it's unlikely that China will see significant growth in external demand … the December export figure does not show a trend. It is just for a single month.”

He added that it will be difficult to coordinate a global exit strategy from stimulus measures adopted to fight the financial crisis, since different countries are at different stages of recovery.

Bottom line: We can expect the PBOC to tighten and restrict lending, which doesn’t mean they will promptly move to direct credit control, as they will try to constrain, as economist Nouriel Roubini calls it, the “monster” Chinese authorities created themselves.

Also, don’t expect China to de-peg from the dollar until there are clear signs of a sustained global recovery.

For the time being, China will remain an export-led economy that relies on a very competitive currency to support its export machine.

In fact, a stronger dollar would serve them very well.

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HansParisis
China's economic growth accelerated to 8.7 percent year-on-year in 2009, achieving the Chinese authorities full-year growth target of 8 percent and totaling 33.54 trillion yuan, which is about $4.91 trillion. Yes, China is now definitively the third biggest economy in...
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2010-17-22
Friday, 22 Jan 2010 01:17 PM
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