CHINA ECONOMIC FORECAST 2009

Beijing, 24 Dec. The Chinese economy grew a whopping 9.9% in the first three quarters of 2008, and 11.9% in 2007. Forecasts for 2009 are nowhere near as rosy.

In 2008, the Chinese government took significant action to encourage growth amid the worldwide financial slowdown. It unveiled a US $585 billion stimulus package which will extend into 2010, and slashed the interest rate three times. It also relaxed credit regulations.

Despite these aggressive measures, global uncertainty, a general bleak outlook, and lack of liquidity between financial institutions will drag China’s growth figures, resulting in ‘only’ 8.6% growth in 2009, according to China Galaxy Securities.

Firms, excluding those in the volatile petroleum, finance, power, and steel industries, should see an earnings grow by 7% in 2009, according to Galaxy.

The World Bank made more conservative forecasts. It once expected China to grow 9.2% in 2009, but now has that revised down to 7.5%. The World Bank projected China’s GDP growth rate would be 7.5%, significantly lower than the 9.4% gained in 2008. It also expects China’s export growth to shrink to 3.5% versus a huge 11% in 2008.

David Dollar, the World Bank Country Director for China said, “In terms of the effect of China's slowdown on the world, there's good news and bad news. China's recently announced stimulus package is good news because it will keep China's growth rate up at a pretty healthy rate and so imports will continue to go into China at a fairly good rate. That's good news for countries like Mongolia and Australia that export commodities like copper and iron ore to China – it's also welcome news for countries selling primary products, machinery and parts to China. The bad news is there won't be as much stimulus to these exporting economies as China was giving in the past."

President Hu Jintao is making socially and environmentally-sustainable efforts which should help guide growth. This new policy will begin in 2009, and is sure to appeal to western investors and governments, if done right. Nevertheless, he is sending the right message.

However, human rights issues will continue to loom as ethnic struggles in Tibet and Xinjiang prevail unsolved. These are not expected to damper economic forecasts or even political stability.

Land reforms will be passed in 2009 in efforts to improve accountability within the Chinese Communist Party. Other reforms to improve accountability and democracy are not planned.

The government budget is expected to report small surpluses in 2009-10 after an approximate surplus of .4% of GDP in 2008. And while inflation has been a recent issue, much due to rising oil prices, it is expected to decline to about 3.8% in 2009. Utility costs will remain high, but these will be compensated by low consumer goods and food costs.

China will maintain a current-account surplus due to its massive amount of exports, although it is forecast to fall to about 7.5% of GDP in 2009.

Chen Xiulian, EconomyWatch.com