China GDP rises 7.9 pc, but export worries persist

Paul Eckert

Bucking the global slowdown, China said its economy grew 7.9 per cent in the first half of the year and the 2008 Beijing Olympics would boost it further. Releasing a slew of strong first-half economic data on Tuesday, the State Statistical Bureau predicted that the annual growth would surpass the official forecast of 7 per cent, although it hedged its bets by saying further deterioration in the global economy could change the picture. Still, the figures contrasted dramatically with numbers released in recent days from other Asian countries, which are slashing growth forecasts as exports to the United States and Japan plummeted.

China stands out from its neighbours mainly because of the strength of its domestic economy, underpinned by massive government infrastructure investment. The State Statistical Bureau said that fixed asset investment rose a year-on-year 15.1 per cent in the January-June period, the fastest annualised increase since 1997. Capital investment by the state jumped 17.9 per cent in the period. The benchmark consumer price index rose 1.1 per cent in the first half, the Bureau said, its strongest showing in three years.

Olympic Boost: Bureau spokesman Ye Zhen called the year-on-year expansion of gross domestic product (GDP) a “hard-won success” amid the tough global climate. “China is a big country with population of 1.3 billion and our domestic demand is vigorous,” he said. But, Mr Ye said that policymakers would have to pay close attention to the impact on economic growth of falling demand from Japan and the US and to slow growth in rural incomes. “If the world economy does not deteriorate further, the weather stays normal and macroeconomic measures are effective, the annual economic growth can still meet or surpass the initial target,” Mr Ye told reporters.

He predicted the Beijing 2008 Olympics would add an average annual boost of 0.3-0.4 of a percentage point to China’s economic growth over the next seven years — a shade higher than the forecasts of leading private economists. Expectations of a Beijing win for hosting. China’s GDP rose a year-on-year 7.8 per cent in the second quarter of this year, Mr Ye said. It grew a year-on-year 8.1 per cent in the first quarter, which was faster than expected.

Retail sales, an indicator of consumer demand, rose 10.3 per cent in the first half of this year — further evidence that China has largely shaken off three years of price deflation with sustained state spending and measures to encourage consumption. By contrast, China said last week that exports slipped 0.6 per cent year on year in June — the first fall in two years—because of weak demand from Japan and the US. In the first half, exports rose 8.8 per cent to $124.57 billion.

Countryside Concerns: Song Guoqing, chief economist at the China Stock Exchange Executive Council, a private think-tank, said aggregate demand in the first half was the highest in recent years. “The property market is booming across the country, which has boosted demand for building materials and other goods,” he said.
But, Mr Song questioned how long the government could remain the spender of last resort. “The government tends to sustain spending to underpin the growth rate, but deficit spending cannot last forever,” he said. And many analysts see a mixed picture for consumer spending, with city dwellers spending, while rural people are held back by slower income growth.

China’s pending entry into the World Trade Organisation, although expected to be a boon for the overall economy in the long-term, may have the earliest and hardest impact on the countryside as inefficient farmers face cheap imports of grain.

-- Reuters