Resourceful China Fights To Preserve Growth

The Age

Tuesday October 21, 2008

John Garnaut, Asia Economics Editor, Beijing

THE Chinese economy has slowed to a single-digit growth rate for the first time since it kick-started the resources boom five years ago.

Growth fell to 9% in the year to the September quarter, as Chinese officials conceded the impact from the global crisis was greater than expected and would get worse.

The gross domestic product figure was well below the market's consensus forecast of 9.7% and the 11.9% recorded in the year to December.

The Chinese Government has sharply shifted course from fighting inflation to preserving growth. On Sunday night, it announced a slew of policies to stimulate investment, protect exporters and boost incomes and consumption, particularly in rural areas.

Looser credit restrictions and new infrastructure projects are expected to follow, particularly in inland regions.

National Bureau of Statistics spokesman Li Xiaochao said the impact of the financial crisis on emerging economies "has been far greater than what we had expected".

"As China's economy becomes more closely linked with the world economy, China has also suffered from the impact," Mr Li said.

"I predict this will have a negative affect on China's foreign direct investment inflows.

"It has and will continue to have a negative effect on the export growth rate.

"The confidence of investors and consumers in major economies has been affected and China is no exception."

Much of China's economy remains buoyed by high profits, rapidly rising incomes and accelerating retail spending.

"China continues to be well placed to avoid following the Western world into the economic abyss," said CLSA economist Andy Rothman in a research note.

Xin Zhigang, a car salesman at one of Beijing's 18 Honda dealerships, said the type of customers had changed but the sales numbers had not.

"We've sold 120 cars this month," he said. "It used to be that they would buy the house and then the car; now they are just settling for the car."

But Australian exporters are disproportionately exposed to the Chinese exporters, builders and factory owners that are in trouble.

Australian officials estimate that the China-driven resources boom has directly added 13 percentage points to Australia's gross domestic income by pushing up export prices.

But in recent weeks commodity prices have been hammered as it has become clearer that the Chinese construction industry has slumped and factories are slashing production.

Yesterday's figures showed that China's industrial production slowed to 11.2%, the slowest since 2002, with factories on China's prosperous eastern seaboard hit the hardest.

Steel, cement and aluminium producers have slashed output this month. Export growth is slowing, but from breakneck speeds.

"Most of the overall 4.8% slowdown in nominal export growth has come from just one category - steel," Mr Rothman said.

The annual growth in garments exports has also slumped, to 1.8%.

China's governing State Council said it would eliminate real estate transaction fees, assist the public to buy houses, deliver export rebates and free up the flow of credit to small and medium enterprises.

Mr Li, at the Bureau of Statistics, hinted that more stimulus would follow.

"We have great potential to increase domestic demand," he said.

"China is still capable of warding off the potential negative impact brought by the global financial crisis.

"We have the means and room to do so."

The Bureau of Statistics said consumer inflation fell for the fifth consecutive month, to 4.6%, and upstream price pressures also eased.

© 2008 The Age

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