The World Bank says six percentage points of China’s growth this year will come from “government-influenced expenditure”, with additional stimulus coming from lower tax revenues.
So amazingly, nearly all of the 7.2% growth the World Bank is now forecasting for China – up from 6.5% three months ago – is the direct responsibility of the government. The rest of the economy is going nowhere.
Meanwhile Barclays Capital and Standard Chartered have also raised their forecasts for Chinese growth this year – to 7.8% and 7.4% respectively.
That China’s economy is still expanding, and that growth is actually accelerating, is the best possible news for Australia. What’s more, this is being achieved with only a modest increase in China’s budget deficit – up from 3% to 5% according to the World Bank.
Is it sustainable? That depends on exports, although in the short term the World Bank says growth could be even higher if the Government decides to spend more on urban infrastructure (which it could, although the bank says it shouldn’t bother – growth is enough now).
The bank is also moderately upbeat about medium-term prospects, even though it expects export growth over the next 10 years to be half what it was in the past decade.
Between 1998 and 2008 world imports grew 6.6% per annum on average, while China’s exports grew 19.7% per annum. The World Bank economists estimate that China’s export growth over the next 10 years could average 9%.
That would reduce China’s GDP growth by two percentage points a year, “which is significant but not dramatic”.
The other thing boosting China’s growth this year is extra liquidity – the Peoples’ Bank of China is injecting huge amounts of cash into the system, much of which is going into the sharemarket, which has been booming as a result.
The editor of Caijing magazine, Hu Shuli, wrote a tough editorial recently in which he called the recovery a liquidity-fuelled delusion.
“Statistics are difficult to come by, but the consensus is that a substantial part of the unusually high level of bank lending since the beginning of the year went into the stock market,” he said.
The World Bank, meanwhile, says the high pace of lending is not sustainable. “As the backlog of projects gets cleared, banks’ excess reserves come down because of all the lending, and government-related projects receive their financing, new bank lending is expected to come down later in 2009. Even so, credit is likely to outpace nominal activity by a very large margin this year, and this implies risks.”
But with any luck China’s fiscal and monetary stimulus will see us through till the rest of the world starts to recover.
This article first appeared in Business Spectator.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
