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Chinese economy rebounds

RISING RETAIL: People stand in a queue to enter a supermarket in Qingdao in east China's Shandong Province recently. - PHOTO: XINHUA

BEIJING: Decoupling from the world and the economic downturn it is experiencing has proven impossible for China. But its resilience is receiving more recognition, with many leading financial institutions upgrading their 2009 growth forecasts since mid-April.

The adjustments for gross domestic product (GDP) growth, ranging from 0.5 to 2.3 percentage points, were based on signs of a turnaround in the first quarter. These indicators included stronger-than-expected real GDP growth, recovering property investment, a pick-up in power consumption and a surge in bank lending.

Merrill Lynch & Co. said it expected China’s GDP to grow 7.2 per cent in the second quarter and 8 per cent this year, while Goldman Sachs raised its projection from 6 per cent to 8.3 per cent, the most optimistic forecast so far. Other forecasts include UBS, which raised its estimate by 0.5 point to 7 per cent and CLSA Asia-Pacific, which lifted its by 1.5 point to 7 per cent.

China’s policymakers can take heart from these forecasts. Every upward revision, big or small, given the global economic slowdown might point to a better chance for the nation to achieve its 8 per cent growth target. That level of growth is considered necessary to raise living standards while maintaining social stability. But there is still the question of whether rapid growth is sustainable. Some analysts believe it is not; unless China rebalances its economy and achieves higher efficiency, lower environmental costs and a balance among investment, trade and consumption.

In an interview with Xinhua, Stephen Roach, chairman of Morgan Stanley Asia, urged Chinese authorities to get more serious about stimulating private consumption because the global economy remained “pretty weak” and might only achieve a weak recovery. Domestic economists voice similar worries, saying the speed of growth does not matter as much as the quality. Liu Shangxi, deputy dean of the Research Institute for Fiscal Science at the Ministry of Finance, said the 6.1-per cent year-on-year growth in the first quarter had been “fairly good” for China. But, he said, “sometimes, it’s worth slowing down a bit to have the economy move more stably.” The turnaround signs mostly reflected the impact of the 4-trillion-yuan ($586 billion) stimulus package. Meanwhile, retail sales still trailed investment in contributing to growth. Local economists warned that the economy remained unbalanced and vulnerable.

Though China might be the first major economy to recover from the downturn, economists disagree on when China will return to sustained high growth. Morgan Stanley has forecast a firm recovery by mid-year, but said sustainable growth through 2010 would still hinge on other countries. “China will be stronger. But will that strength be enough to allow others to follow in its footsteps? I don’t think so,” said Mr. Roach. “Focusing on stability is a huge plus for China. But the nation must be vigilant in its financial policies, especially monetary and regulatory policies, and not allow asset bubbles and financial innovations it doesn’t understand,” he said. — Xinhua

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