China’s Pace of Economic Recovery May Not be Sustainable

With the big celebration of the 60th anniversary of the founding of the People’s Republic of China, the pledge of Chinese government to create jobs and assure fast economic growth has been stronger than ever. But is China able to overtake its current rate of growth once the effects of a vast stimulus package disappear?

Indeed, so far China’s economy has been doing pretty well when comparing its growth with other countries. In fact, although worst in previous years, China’s growth rate in 2009 has been among the world’s strongest. Looking further, in September industrial production gained 13.9% from a year earlier and local currency new loans reached 517bn Yuan up from 410bn in August. Also, retail sales climbed 15.5% and urban fixed-asset investments went up 33% from January to September.
However, we can’t forget that the main driver of Chinese economy in the last few years have been exports, which account for 40% of Chinese GDP. And although the decline in exports has been slowing, shipments in September were still 15% worst than a year ago. In fact, of 7.7% average GDP growth over the last nine months, investments accounted for 7.3 percentage points, consumption for 4 percentage points and the drop in net exports took off 3.6 percentage points. Moreover, even though September’s Purchasing Managers Index was above 50 for a seventh month in a row, indicating expansion, five out of eleven subcomponents fell. In comparison, in July and August, when the stimulus aide was picking up, the proportion was nine to two. And most importantly, the forward looking new orders component came in at 58, down from its August 59.3 high.

Anna Fedec,
10/27/2009 11:53:18 AM