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China Economic Outlook

China Economic Outlook



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Published by Rezaul Huda
China Economic Outlook
China Economic Outlook

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Published by: Rezaul Huda on Apr 24, 2009
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Business Monitor International Ltd
chapter 1
Poitica Outook
chapter 2
Economic Outook
SWOT AnaysisStrengths
China is the fastest-growing major economy in the world, and this has lifted hundreds of millionsof people out of poverty over the past generation.China has a massive trade surplus, and its US$1.9trn of forex reserves serve as a major cushionagainst external shocks.China’s economic policy-makers are committed to continuing their gradual reform of the economy.
China’s economy has been growing too fast for its own good. This has led to major imbalances,and environmental degradation.China’s dependency on exports to boost growth has made it vulnerable to the global recession.Private consumption remains weak, at less than 0% of GDP.The close relations between provincial leaders and local businesses are fostering corruption, andare making it harder for the central government to enforce its policies.
China’s economic growth is slowly becoming more broad based, with domestic consumption likelyto rise in importance vis-a-vis exports, thanks to a middle class of 00mn-00mn people.China’s ongoing urbanisation will be a major driver of growth, and new cities will emerge in theless-developed inland provinces. The UN forecasts China’s urban population rising from 0% in00 to % in 00, a gain of 00mn people.As China moves up the value chain, it will develop its own global brand name companies, fosteringinnovation and growth.
There are fears that the global recession of 008-10 will mean an end to China’s double-digitgrowth rate.Despite a halt to the appreciation of the yuan currency, the recession is leading to job losses inChina’s export sector, and thus increasing social instability.
Relatively high food price ination could become structural, as farmland is lost to industry or pol
-lution, and farmers migrate to cities.
CHINA Q2 2009
Business Monitor International Ltd
BMI Economic Risk Ratings
The Chinese government has decided to train one million unemployed university gradu-ates over the next three years in addition to providing loans to companies who hire them.According to Chinese news agency Xinhua, the government will provide loans of upto CNY2mn (US$292,400) to labour-intensive companies who recruit graduates, andwill provide a grant of CNY50,000 (US$7310) to graduates who want to start their owncompanies. However, with an estimated 6.1mn college students expected to graduate in2009, the government’s efforts are unlikely to be enough at a time when unemploymentis continuing to rise.
S-T Economy Rank TrendChina 93.5 1 =
Hong Kong 82.9 2 =Taiwan 81.3 3 =Thailand 74.8 4 =Malaysia 73.8 5 -South Korea 71.9 6 =New Zealand 70.6 7 =Philippines 68.1 8 =Indonesia 64.4 9 =Japan 63.8 10 = Australia 63.1 11 =India 62.5 12 -Bangladesh 54.2 13 =Cambodia 54.0 14 =Vietnam 48.3 15 -Pakistan 43.8 16 =Sri Lanka 37.3 17 =Singapore - 18 -Laos - 19 =North Korea - 20 =Myanmar - 21 =
Regional average 63.0 Global average 62.4 Emerging Markets average 59.8 
L-T Economy Rank Trend
Taiwan 77.9 1 =Malaysia 75.7 2 =Hong Kong 75.2 3 =South Korea 73.9 4 +
China 71.6 5 =
 Australia 71.1 6 =New Zealand 68.0 7 =Thailand 67.9 8 =Japan 65.9 9 =Indonesia 62.1 10 =India 61.8 11 -Vietnam 57.8 12 +Philippines 55.4 13 =Bangladesh 53.8 14 =Sri Lanka 50.5 15 =Cambodia 49.3 16 =Pakistan 45.0 17 -Singapore - 18 -Laos - 19 =North Korea - 20 =Myanmar - 21 =
Regional average 63.0 Global average 62.4 Emerging Markets average 59.8 
Business Monitor International Ltd
Economic Activity
Q408 GDP Data Con Ou Fas
As anticipated, Q408 GDP data conrmed that China is far from immune from the unfolding
global recession, with real growth dropping to 6.8% y-o-y. This marked the weakest out-turn in seven years and dragged full-year growth to 9.0%, a sharp decline from the 13.0%
recorded in 2007 and the rst time since 2002 that the world’s third largest economy hadfailed to register double-digit headline growth. With things expected to get worse before
they get better, we are anticipating further grim news from China in H109, and reiterateour below-consensus 5.6% growth forecast for the year.
Indeed, trade data for December revealed that both imports and exports suffered a second
consecutive month of contraction, with exports falling by 2.8% y-o-y, accelerating fromthe 2.2% decline recorded in November, while imports plummeted by 21.3% y-o-y havingdropped by 17.9% in the previous month. Notably, Exports to the US (which purchased
17.7% of China’s total exports in 2008) fell by 4.1% y-o-y in December to compound
November’s 6.1% decline, while shipments to the EU (which, with a 20.5% share, was
China’s single biggest export destination in 2008) fell 3.5% y-o-y in December after re
maining at in the previous month.We have recently revised down our 2009 growth forecasts for both the US and the EU – from
-2.0% and -1.6% to -2.3% and -2.5%, respectively – implying that export growth is likely to
remain in negative territory (or at least remain very weak) over the near term. Meanwhile,
imports are likely to follow suit as commodity prices continue to trend lower, demand forinputs for manufacturing exports decline and domestic demand remains sluggish.
Dostic Dand Unlikly To Co To Th rscu
To be sure, although not as bleak as recent trade data, leading indicators of domesticdemand are painting an increasingly bearish picture. Retail sales grew by 19.0% y-o-y in
December, and although this is still a strong number, it nevertheless marked a third con
secutive month of slower growth having reached 23.2% in September 2008. Meanwhile,urban xed asset investment (FAI) growth slowed to 26.1% in 2008. Once again, whilethis is still an impressive outturn, December nonetheless represented a third straight monthof slower growth after peaking at 27.6% in the January-September period. Moreover, realestate investment continued its rapid slide in December, with growth decelerating for a
sixth month in a row to 20.9% y-o-y, having hit a record high of 33.5% in June.
Property price growth dipped into negative territory in December, and leading property
market indicators suggest that the slowdown has further to run. The quantity of land pur-chased – an indicator for future property development – fell by 5.6% y-o-y in November,according to the most recent data available from the National Statistics Bureau, compounding
the previous month’s 2.6% decline, while growth of oorspace of commercial buildings
sold spent a ninth straight month in negative territory after it contracted by 16.5% y-o-y in
November. Perhaps most worryingly though is the fact that despite growth of oorspace of 
commercial buildings under construction continues to slow (it registered growth of 18.7%y-o-y in November, down from a peak of 32.1% in February 2008), it is still expanding.
Economic growth dipped to a seven-year low 
of 6.8% in Q408, dragging full-year growth for 
2008 to 9.0% – a sharp decline from the 13.0%
recorded in 2007 and the rst time since 2002 
that the world’s third-largest economy had 
failed to register double-digit headline growth.However, the bad news does not stop there.
Recent macroeconomic data has shown that 
economic activity continues to cool, and we do
not foresee any turnaround in fortunes for theChinese economy until the second half of 2009
at the very least, highlighting that is more likely to be 2010 before a recovery gets under way.With this in mind, we expect real GDP growth
to slow to 5.6% in 2009.
Worst Outturn In Seven Years
Real GDP (chg % y-o-y)
Souce: National Bureau of Statistics
     Q     1     0     1     Q     2     0     1     Q     3     0     1     Q     4     0     1     Q     1     0     2     Q     2     0     2     Q     3     0     2     Q     4     0     2     Q     1     0     3     Q     2     0     3     Q     3     0     3     Q     4     0     3     Q     1     0     4     Q     2     0     4     Q     3     0     4     Q     4     0     4     Q     1     0     5     Q     2     0     5     Q     3     0     5     Q     4     0     5     Q     1     0     6     Q     2     0     6     Q     3     0     6     Q     4     0     6     Q     1     0     7     Q     2     0     7     Q     3     0     7     Q     4     0     7     Q     1     0     8     Q     2     0     8     Q     3     0     8     Q     4     0     8

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