THE BLOG'S THREE MAIN OBJECTIVES:
~*Revealing and Getting Rid of Scams | Creating Honest Sustainable Wealth | Offering Happiness, Safety and Legitimacy*~

Monday, 20 October 2008

China's economy showing cracks

SHANGHAI - CHINA'S strong economy appeared to put the nation on the global high ground when the financial tsunami first struck last month, but as the storm continues to rage, that position is looking less sure.

After five years of annual double digit economic growth, and with more than US$1.9 trillion (S$2.81 trillion) in foreign reserves as well as a closed financial system that protected it from toxic US assets, China seemed insulated from the crisis.

But with thousands of workers already being laid off as exports shrink, the property market slowing and the stock market low on confidence, the world's fourth biggest economy is clearly starting to hurt amid the global downturn.

'People are starting to see the pain, that is in business and also in the labour market. It's not as easy to get a job as it was a few months ago,' Beijing-based World Bank economist Louis Kuijs told the wires agencies.

'The bigger the economic crisis - the recession in the US and in Europe - the more it will be felt in China,' he said.

China's leaders, for their part, have said the country's best strategy is to keep the economy growing.

'If a large country of 1.3 billion people can keep up stable and relatively fast economic growth, that's a big contribution to the world,' Premier Wen Jiabao said.

On Monday, China will release its third quarter gross domestic product figure.

China's GDP growth is expected to shrink to 9.1 per cent in the third quarter from 10.1 per cent in the second, according to a forecast by Goldman Sachs.

If accurate, it would mark the first time China's quarterly GDP growth has fallen below 10 per cent since the end of 2005.

But a fall in the third quarter figure would mostly reflect government policies to moderate growth, Goldman Sachs said, not the US crisis.

Morgan Stanley predicts full-year GDP growth will shrink to 9.8 percent and to 8.2 percent in 2009 - still above Beijing's official 8.0 target.

However, if property markets melt down across the country, the economy could see a hard landing with GDP growing less than seven per cent, Morgan Stanley said.

Its economists estimate there is about a one in four chance of that.

Independent Shanghai-based economist Andy Xie is more pessimistic, saying a property crash is imminent because prices are too high and developers have borrowed heavily and built too much.

He points to Guangdong province, south China's economic engine, where property prices have already crashed.

The booming city of Shenzhen has experienced one of the deepest corrections, with prices down 40 per cent in August from a peak a year earlier.

'The economy is going to go through a rough patch. All these bubbly things are going to bounce back on people,' he said.

Officials said this week that industrial output growth in the Shanghai metropolitan area slowed to six per cent on year in September, compared with an average of 11.5 per cent on year growth for the first three quarters.

And exporters, who accounted for 40 per cent of China's GDP last year, are already being hit hard.

In one of the highest profile examples, a toy maker that sold to US giants Mattel and Disney announced last week it had gone bust due to the global economic crisis, leaving up to 7,000 people jobless.

Exporters across a wide range of industries are increasingly voicing pessimism about their immediate futures.

Analysts widely expect China's leaders will speed up infrastructure projects around the country to stimulate the economy in a downturn, as well as push ahead with their long-term plans to boost domestic consumption.

The Ministry of Finance has 2.7 trillion yuan (S$591 billion) deposited in the central bank to help fund a stimulus package, Standard Chartered economist Stephen Green wrote in a research note. -- AFP

No comments:

Goldman Sachs Information, Comments, Opinions and Facts