From my experience on the ground in Shanghai during Q2, I heard from various sectors about the dramatic pickup in business activity, particularly in May 2009. I also witnesses firsthand the success of retail spending stimulus to support domestic consumption. I have remained bullish on China exceeding previous GDP estimates of 4-6% from Wall Street and achieving growth of 8%.
I detailed in my “BRIC Report: Rebounding From the Financial Crisis” that the Chinese government was utilizing various stimulus (monetary, fiscal, banking, retail, infrastructure, healthcare) to achieve its target of 8% growth. This article provides an update on China’s continued success in achieving this goal.
China on Track To Meet GDP Targets
By Richard McGregor in Beijing and Chris Giles in London
July 17 2009, Financial Times
China’s economy is on track to hit the government’s growth target of 8 per cent this year following increased government spending and a surge in bank lending in the second quarter.
The economy expanded at an annual rate of 7.9 per cent in the three months to the end of June, the National Bureau of Statistics announced yesterday, with investment, industrial production and retail sales all contributing to higher output.
China’s accelerating growth has already lifted prices of commodities such as iron ore and copper and boosted economic output of raw materials exporters such as Australia and Brazil.
The speed of the Chinese recovery, without an accompanying boost in demand from advanced economies in North America and Europe, has surprised economists and led the International Monetary Fund to revise higher its outlook for the world economy earlier this month. The Chinese government’s mass injection of money into the economy has also pumped air back into the asset price bubbles in the domestic property and stock markets.
Li Xiaochao, a spokesman for the NBS, said the economy “had stabilised with increasing positive changes” after dipping sharply at the end of last year and expanding at an annual rate of only 6.1 per cent in the first quarter, leading many economists to believe that the government would not be able to meet its year-long growth target of 8 per cent. But the government’s pump-priming has turned the economy round, prompting rapid revisions by many economists, and the World Bank , to upgrade China’s outlook.
“The Rmb1,530bn [$224bn] in new loans in June brought total new lending in the first half of the year to Rmb7,400bn, or almost one quarter of our estimated 2009 GDP,” said Wang Tao, of UBS, in Beijing. “We now expect total new lending in 2009 to reach Rmb9,000bn, a speed of re-leveraging unprecedented in China’s history.”
The bank lending and fiscal spending has driven fixed-asset investment, the prime engine of growth, up 33.5 per cent in the first half of the year compared with the same period in 2008.
Government incentives for consumption, such as rebates on buying cars and white goods, helped support retail spending, which expanded 15 per cent in the first six months of the year. At his press conference, Mr Li appeared to suggest that the government was not yet ready to apply the brakes to the economy. Although momentum was clearly picking up, he said the recovery was “unbalanced”.
However, the faster-than-expected quarterly data may strengthen the case already argued internally by the central bank and the bank regulator for the stimulus to be reined in.
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