China's economy grew by 7.9pc between April and June, confirming the country recovery from the financial crisis. The economy is on course to hit the target of 8pc growth in GDP this year following growth of 7.1% in the first half.
GDP growth was 6.1 per cent in the first quarter, but a surge in bank lending and the government's 4 trillion yuan (£356bn) fiscal stimulus package has stimulated growth. China is currently printing almost three times as much new money as the United States to fuel the credit boom. Bank lending is estimated to be around 25% of GDP and money supply growth M1 is up by 25% year on year. So much for the potential strength of the Renminbi.
Factory output, commodity imports and electricity production have all improved but exports and imports remain weak. Exports have been declining for some eight months reflecting the weakness of world trade. Imports are dominated by commodities rather than net manufactures providing little stimulus to world growth. In the first half of the year, exports were down by 22% and import values were down by 25%
China’s economy is the only one of the world’s 10 biggest expanding. Foreign exchange reserves rose to US$ 2.132 trillion at the end of Q2 2009 from US$1.9537 trillion at the end of Q1 2009 as investors abroad pumped money into stocks and property. Approximately 70% of the exchange reserves are held in Dollars.
According to the IMF, emerging economies, led by China, are set to regain growth momentum in the remainder of this year, helping the world economy to recover from the worst slump since World War II. China accounted for a third of global growth last year, according to IMF data.
Private sector consumption in China, remains at just 36% of total GDP which suggests the economy can do little to offset the slow down in the US economy, the collapse in expenditure and the increased savings ratio amongst debt stricken American consumers. The Dragon is not yet in position to become the engine of world growth.
According to Li Xiaochao, Spokesman for the National Bureau of Statistics of China,“ There are many difficulties and challenges existing in current national economic performance. The base for recovery is still infirm, the momentum for picking up is unstable, the recovery pattern is unbalanced, and thus there are still uncertain and volatile factors in the recovering progress." Apart from that ...
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In reply to the question, "No."
The Chinese economy has been 'growing' at this rate for a decade or more, and it wasn't the 'engine of world growth' it was 'the engine of the world asset and credit price bubbles'.
Why would it be different next time?
Posted by: Mark Wadsworth | July 16, 2009 at 01:29 PM