Has China has started softening up the world for a weaker than expected economic growth performance this year?
The reason for the question, a weaker than expected export performance which could see China fall short of the official 8% target for 2009. (It grew an annual 6.1% in the first quarter).
A second, more senior Chinese Government official has now warned that the export performance this year won’t be strong.
That was after a milder warning was issued around 10 days ago by another official who estimated exports could be down 20% for the first half of the year and 5% to 8% for the full year (Which would imply a big rebound in the second half, although that point was not made).
The news could mean that countries like Australia, which have staked much on the Chinese rebound, could be found short.
But the World Bank seems to have no concerns as it has pushed up its estimate for Chinese growth to 7.2% for the year from the earlier forecast of 6.5%.
"Government-influenced investment has soared," the Bank said.
"Market-based investment has lagged, although positive signs have emerged in the real estate sector.
"Consumption has held up well.
"Very weak exports have continued to be the main drag on growth, while import volumes have recovered in the second quarter of 2009 as raw material imports rebounded."
The bank said that "market based investment is likely to continue to lag for a while because of a squeeze on margins amidst spare capacity in many manufacturing sectors.
"Prospects for real estate activity appear reasonably good, but consumption is unlikely to pick up speed.
"In all, the World Bank thinks that China’s growth is unlikely to rebound to very high single digit rates before the world economy recovers convincingly, and projects GDP growth of 7.2 percent in 2009.”
“Government-influenced investment will strongly support growth in 2009.
"However, there are limits to how much and how long China’s growth can diverge based on government influenced spending,” said Ardo Hansson, the World Bank’s lead economist for China.
“It is too early to say a robust sustained recovery is on the way.”
The World Bank says that with government revenues falling and expenditure rising rapidly, China’s fiscal deficit will rise to almost 5 % of GDP this year, well above the 3% of GDP budgeted by Beijing and a large jump from last year’s deficit of 0.4% of GDP. (Australia’s could end up around 5% in the 2010 year).
“On current projections it is not necessary and probably not appropriate to add more traditional stimulus in 2009,” said Louis Kuijs, the main author of the World Bank update.
“One reason is that the fiscal deficit is on course to be significantly higher than budgeted this year and additional stimulus now would reduce the room for stimulus in 2010.”
So it will be down to the Government spending campaign to keep the economy chugging along, but for how long.
That’s why the underperformance of the export sector has greater importance for China’s growth prospects than many commentators think.
As the Government spends to keep the economy stimulated, the weak export performance is actually limiting the impact of that stimulus.
China needs exports to flourish, and that’s not going to happen with the global economy in a slump.
At the same time a "Buy China first policy" has emerged from the government, according to media reports, which sends a further signal that the Chinese Government is nervous about the strength of the response in the economy to the stimulus spending and wants to keep as much of the money working inside China.
The latest warning about the export performance came in a story in the official China Daily website and paper, which was later reported on the Xinhua website and newsagency reports.
"Export growth is unlikely to rebound in the short run and it’s difficult to realize the 8 percent target for foreign trade growth this year," Li said in an address to a Standing Committee meeting of the National Committee of the Chinese People’s Political Consultative Conference, the nation’s top political advisory body. (Source)
"During his two-hour speech, Li briefed the nation’s top political advisors on the latest economic situation, the effect of the stimulus package and the priorities for the government during the rest of the year," Xinhua and the Daily reported him as saying.
"Top policymakers set a target for the nation’s foreign trade to grow 8 percent earlier this year, the same rate as the nation’s expected GDP growth target.
"However, the nation’s trade volume for the first five months shrunk by 24.7 percent, compared with the same period a year earlier.
"Li said the fast contraction in foreign demand was posing an "unprecedented" challenge to the nation’s economy, which showed positive signs over the past months.
"He reckoned the economy might have stabilized in the first half, after its growth sank to an annualized rate of 6.1 percent in the first quarter.
Xinhua said that in recent months optimism had grown that China’s economy would rebound, thanks to the effect of the governme
