Tuesday, 6 January 2009

Will Chinese growth REALLY hit 8%?

This blog has consistently stated that GDP may well come in below the crucial 7.5-8% level and have expressed concern on the impact this would have on the wider political economy.

I would place myself on the more dismal than usual side of the dismal profession that is economics. Perhaps I have been overly doom-laden on the costs of recession on China?

The alternative of course is that these predictions are over estimates or dare I said "made up". It appears to be a coincidence that we are hitting 8% so closely. If there is one thing I have learnt and that is to have grave doubts about Chinese data. I just do not believe these predictions.

China central bank sees GDP up 8% [FT]

SHANGHAI/BEIJING, Jan 6 - China’s economy will probably grow by about 8 per cent this year, the central bank’s research bureau forecast on Tuesday, the latest in a string of relatively optimistic estimates.

Some analysts have predicted a much sharper slowdown for the world’s fourth-largest economy, to as little as 5 per cent, as factory output growth grinds to a halt and exports shrink from their year-earlier levels.

However, government officials and researchers have centred around the view that China can engineer growth of about 8 per cent this year -- the pace officially targeted by Beijing as what it considers necessary to create enough new jobs.

The research bureau of the People’s Bank of China (PBOC) added its voice to that consensus, saying in a report that they expect a relatively modest slowdown from their estimate of 9.3 per cent growth for all of 2008. The economy expanded by 9.9 per cent from a year earlier in the first nine months of 2008.

The researchers also estimated that consumer prices would rise by less than 3 per cent in 2009, after an estimated increase of 6 per cent in 2008.

Writing in the official Shanghai Securities News, the team, led by Zhang Jianhua, head of the PBOC’s research bureau, cautioned that the risks of deflation were on the rise, fuelled in part by weakness in property investment and overseas demand.

”To effectively counter the risk of rapidly accelerating deflation, the key is to fully implement all manner of policies to expand domestic demand and support growth, and to speed up reform of pricing of basic goods,” they wrote, saying that the report represented their own views, not the central bank’s.

Some private investment banks have also said that they do not expect growth to slow as sharply as many others think it will.

Yiping Huang with Citigroup in Hong Kong said in a research note on Monday that the economy would probably grow by about 8.2 per cent in 2009, as industrial output rebounded sharply from the second quarter.

”We believe in the government’s ability to achieve its growth target,” Huang wrote



Micah said...

But think about what it would take to hit 8% growth. Pulling numbers out of my memory here, but:

Nominal GDP around 30 trillion RMB, so 8% growth would be 2.4 trillion RMB in 2009.

The central government has already said they will inject between 1 and 1.5 trillion into the economy. Even if it were only 1 trillion, and even if only half of that actually "hits" GDP in 2009, that in itself would be 500 billion RMB, or ~22% of the total growth needed. Even if the most pessimistic growth estimates become reality (currently around 5%, I think), most of the difference would be made up by government money coming into the system (assuming they do not incorporate such a stimulus). Of course, if the government spends more, or if more of the impact is felt in 2009, the growth will increase accordingly.

Anonymous said...

Think you're mixing up ends with means here; the reason why China needs a growth rate of 7%+ is as this signals that the private sector does its part in delivering enough jobs, however, should the need arise the Chinese state still has the means to make up that deficit by coming up with a way to get those people employed, even if it is just temporarily.
The most important thing, in terms of riot potential, is to preserve a decent outlook for university students. Any idea on their projected growth rate? It's been 5.6 and is now around 6.1.