China’s Economy on its Way to Full-Recovery?

In the second quarter of 2009, China’s real GDP growth accelerated to 7.9% yoy, after reaching 6.1% in the first three months of this year. And although there are some doubts on the reliability of data, at Trading Economics we think that looking at the scale of Chinese fiscal stimulus and pick up in domestic demand the pace of growth may be fairly accurate.

Indeed, there is some evidence the 4 trillion Yuan (US$585 billion) stimulus package is producing results. For example China's total fixed asset investment surged 33.5% yoy in the first half of this year. Moreover, industrial production increased 10.7% in June from a year earlier after an 8.9% gain in May and property investment growth accelerated to 17.9% yoy in June from 11.9% yoy in May. Looking further, retail sales which rose 15% in the first half year and household survey data both point to stronger household consumption.  To make things even better, banks, prompted by government orders, are extending loans and M2 money supply is growing at a record pace. Also, China plans to boost welfare spending by 29% and is giving 20 billion yuan in subsidies this year to help rural residents buy televisions, fridges and other electrical appliances.

Nevertheless, exports, which have been the main driver of the Chinese economy in the past decade, fell for the eighth straight month in June as the global recession is still cutting global demand. In fact, overseas sales slid 21.4 % in June from a year earlier, after a record 26.4% drop in May. Moreover, a recovery in export demand may be slowed by rising unemployment in the European Union and the U.S., China’s top two overseas markets. More importantly, there is a danger that the Chinese economy may start shrinking again as the effects of the stimulus wanes.


Anna Fedec,
7/17/2009 9:32:24 AM