China

The Chinese economy is in the midst of a gradual slowdown. A weaker global economic environment and tighter domestic policies combined to slow gross domestic product... Show More + (GDP) growth from 10.4 percent in 2010 to 9.2 percent in 2011. Slow growth in the Euro area and sluggish recovery in the US limited the contribution of net exports, as exports decelerated more rapidly than imports. Tighter domestic policy conditions dampened investment particularly in infrastructure and real estate. In contrast, consumption growth remained robust as consumer confidence was sustained and household income continued to grow rapidly. The current account surplus is projected to increase slightly to 3 percent of GDP in 2012 and 3.3 percent in 2013. Terms of trade improvements offset an initially lower trade balance driven by export weakness and import robustness. With trade volumes recovering in 2013 and the terms of trade improving further, the surplus will also expand in 2013. Despite continued net capital inflows, foreign exchange reserves will accumulate more slowly. The longer-term outlook will depend on how China manages key structural challenges. As the traditional engines of growth weaken, GDP growth should gradually slow. The growth benefits of urbanization and industrialization are expected to hit diminishing returns. China will also see major demographic change over time, with old-age dependency rising and the labor force shrinking soon. Total factor productivity growth would likely soften as efficiency gains from first-generation reforms lessen and technology gaps with high-income economies narrow. In addition, the welcome efforts to rebalance the economy are expected to not only alter the pattern of growth, but also bring slower, though higher-quality, headline growth. Show Less -

China's growth has moderated somewhat, with a shifting composition. Gross Domestic Product (GDP) growth declined from 10.6 percent in the first half to a still surprisingly... Show More + strong 9.6 percent (yoy) in the third quarter. The domestic economy cooled as the stimulus impact is fading out and the monetary stance is being normalized. Investment and urban consumption have decelerated, and so have imports. Meanwhile, with exports strong, net external trade has contributed significantly to (yoy) growth and the external surplus is rising again. The Results Based Management (RMB) has appreciated somewhat against the US dollar recently, although not in effective terms. Despite an expected deceleration, global growth prospects are fairly favorable due to emerging market strength. But risks include a weaker outlook in high income countries and ample international liquidity as well as the global imbalances and possibly contentious policies triggered by them. Global price pressures remain contained by spare capacity in many countries. But there are upward inflation risks internationally. Show Less -

In spite of the global recession, China's economy grew 8.7 percent in 2009. Massive investment-led stimulus was key, but real estate investment gained prominence more... Show More + recently and household consumption growth has held up very well. The domestic growth momentum continued in the first months of 2010. Exports declined in 2009 as a whole, even as China gained global market share. With imports strong, external trade was a major drag on growth in 2009 and the external current account surplus declined sharply. Exports rebounded strongly through 2009, though, and exceeded the pre-crisis level in early 2010. In a heated real estate market, surging property prices triggered policy measures to expand supply and curb speculation. In spite of the global recession, China's economy grew 8.7 percent in 2009. Growth decelerated significantly in end 2008 and early 2009 as exports collapsed amidst the global recession. But, China's massive stimulus package kicked in the second quarter of 2009. We estimate that quarter on quarter gross domestic product (GDP) growth peaked in the second quarter and moderated to an average 10 percent in the second half (seasonally adjusted annualized (SAAR)), bringing year on year (yoy) GDP growth to 10.7 percent in the fourth quarter. The domestic growth momentum broadly continued in the first months of 2010. Growth of monetary aggregates and investment growth started to ease somewhat in late 2009. After a rush of lending in the first weeks of 2010, the government took measures to contain the pace of lending and loan growth slowed to 27.2 percent (yoy) in February. However, consumption did not slow in early 2010. Retail sales grew 15 percent in the first 2 months of 2010, in real terms, compared to a year ago. Show Less -

Large fiscal and monetary stimulus has supported a recovery in China's economy. Falling exports amidst the global recession have been a major drag on growth. Nonetheless,... Show More + real gross domestic product (GDP) growth rose to 8.9 percent year-on-year in the third quarter on the back of the stimulus. Although most of the stimulus has shown up in infrastructure oriented government-led investment, some has been consumption-oriented and domestic demand growth has been broad based. Resurgent housing sales have started to feed through to construction activity. Investment in manufacturing is affected by spare capacity, but consumption has held up well. The strong domestic demand has buoyed import volumes and the current account surplus may fall to 5.5 percent of GDP this year even with import prices down sharply. The downturn has clearly affected the labor market, but the impact has been smaller than expected and the trough may have been past. In the medium term, the recovery can only be sustained by successful rebalancing of the economy. Rebalancing and getting more growth out of the domestic economy call for more emphasis on consumption and services and less on investment and industry. On earlier initiatives, some further steps have been taken in recent months to rebalance and boost domestic demand, including increasing the presence of the government in health, education, and social safety; improving access to finance and SME development; and mitigating resource use and environmental damage. These are useful steps, but more policy measures will be needed to rebalance growth in China, given the strong underlying momentum of the traditional pattern. Structural reforms to unleash more growth and competition in the service sector and stimulate more successful, permanent migration would be particularly welcome. Show Less -

The note particularly discusses real economy in China, which has been hit hard by the global crisis, but has been holding up. Indeed, China has weathered the storm better... Show More + than many other countries because it does not rely on external financing, its banks have been largely unscathed by the international financial turmoil and it has the fiscal and macroeconomic space to implement forceful stimulus measures. As the global crisis has intensified, however, China's exports have declined sharply, and this is affecting market-based investment and sentiment, as well as employment, notably in the manufacturing sector. Although China's growth is set to decline, it is still likely to be higher than in most other countries. However, the continued global crisis is bound to contain China's growth in 2009 and 2010, especially via weaker exports and market-based investment. Nonetheless, China's economic fundamentals are strong enough to allow policymakers to consider policies that will affect the economy well beyond 2009. There are useful synergies between China's short and medium term policy objectives. Financial sector reforms will help. They will help China manage the downturn and facilitate the transition to a more balanced economy. Show Less -

The note particularly discusses economic growth in China, which has moderated to a more sustainable pace. In line with slower global growth, activity decelerated so... Show More + far in 2008. Adjusted for price rises, growth of real exports and imports has decelerated but remains robust. Sharply higher import prices are inflating import values, bringing down China's trade surplus, even as the contribution of net trade to growth remains positive. Headline inflation is receding even as non-food price pressures emerge. Amidst weaker and uncertain global prospects, China's growth will be supported by strong international competitiveness and a robust domestic economy. On current growth forecasts, there is no need to ease the overall macroeconomic stance, although global uncertainty calls for vigilance and flexibility. Reducing China's very large external surpluses remains a key policy challenge. The current account surplus is still responsible for the majority of the external surplus. Reducing it requires a set of structural policies to rebalance the overall pattern of growth, a key government objective on which progress seems to be limited so far. Speculative inflows seem to have increased recently. Show Less -

This paper commences with an overview that provides the following observations: economic growth remains rapid and the trade surplus continues to widen, while the pattern... Show More + of growth remains unchanged; the recent financial market turmoil may affect China's economy, but China is well placed to absorb the impact; China's macroeconomic prospects remain good; the external imbalance remains the main macroeconomic issue; and a key challenge remains to rebalance the economy. The paper goes on to list: recent economic developments, economic prospects and policies, financial sector policies; and special focus - is china reaching the end of its labor surplus phase. Show Less -

The impact of the international financial and economic turmoil on China's economy has been manageable so far, but is expected to intensify. China's financial system... Show More + is relatively insulated from the direct impact of the international financial distress. In the real economy, overall export growth has until recently remained robust due to strong demand from emerging markets and gains in global market share reflecting strong competitiveness, although with pronounced differences in export performance between sectors. However, looking forward, the impact of the crisis is spreading globally, with risk aversion and deleveraging leading to a funding squeeze that affects demand in many countries, including many emerging markets. Thus, as in earlier global downturns, China's export growth is likely to be low in 2009, even with expected continued market share gains. Domestic factors have already made China's economy slow down in 2008, coming off its high pace in 2007. Due in part to an earlier tightening in macroeconomic policies, investment growth declined in 2008, led by real estate and construction, which then fed through to several 'upstream' industries. Most other segments of the domestic economy, notably consumption, seem to have held up reasonably well so far. Looking ahead, private sector investment is likely to be weighed down by the unfavorable external prospects and continued weakness in real estate. Private consumption growth is likely to soften in 2009, but will receive some support from fiscal policy. In the mean time, inflation is coming down steadily. After absorbing higher food prices, headline inflation has receded and, with sharply lower raw commodity prices, inflation is not an issue of concern at this point. Show Less -

This paper commences with an overview that provides the following observations: economic growth and credit expansion in the first quarter of 2006 have surprised on the... Show More + upside; prolonged strong foreign exchange inflows continue to complicate monetary policy; sustained rapid growth is expected to continue; more policy action is needed to keep credit and investment growth in check, mitigate external imbalances, and to entrench the rebalancing of growth patterns; in the medium term, rebalancing growth requires structural measures. The paper goes on to list: recent economic developments, economic prospects and policies, and corporate sector policies and developments. Show Less -

Despite the unexpected high growth in the last quarter of 2004, the risk of China's economy overheating has declined, as domestic demand growth and consumer price inflation... Show More + have come down in the wake of measures taken to cool the economy. However, the domestic slowdown was more than compensated by buoyant export growth and moderating import growth. The macroeconomic outlook for 2005 remains favorable, with a supportive external environment, prospects of robust domestic demand growth, and waning underlying inflation pressures. Under these circumstances, policymakers are rightly putting emphasis on institutional and structural reforms. China's economy finished 2004 on a strong note, with a gain of 9.5 percent in GDP against 9.3 percent in 2003. This unexpected high outturn was driven by strong export performance in the second half of the year, whereas domestic demand has been easing in 2004, led by a slowdown in investment. Inflation has come down in the second half of 2004; after peaking at 5.3 percent in July, consumer price inflation declined gradually to 2.4 percent by December, largely due to a decline in food price increases. Exports have outpaced imports: continued export strength reflects more production capacity coming on stream, robust external demand, and China's rising price competitiveness due to a depreciating US Dollar. Show Less -